Month: February 2021

With lower returns on the horizon, public pensions will turn to riskier assets, Moody’s says

Mary Pat Campbell

Link: https://www.marketwatch.com/amp/story/with-lower-returns-on-the-horizon-public-pensions-will-turn-to-riskier-assets-moodys-says-11614289692?mod=dist_amp_social

Excerpt:

State and local government pension systems are increasingly dependent on investment returns, and at risk of increasingly volatile results, as funding levels remain depressed and systems increasingly start to pay out more than they take in, according to a new report from Moody’s.

The credit-ratings agency anticipates higher volatility and lower returns across asset classes in 2021 compared to 2020, even as many pension sponsors have spent the past few years lowering their assumed returns from previous loftier targets that they rarely hit.

“With persistently low interest rates for high-grade fixed-income securities, public pension systems continue to rely on highly volatile equities and alternatives to meet return targets, posing a material credit risk for some governments,” the Moody’s analysts wrote.

Author(s): Andrea Riquier

Publication Date: 25 February 2021

Publication Site: MarketWatch

Monetary policy and the corporate bond market: How important is the Fed information effect?

Mary Pat Campbell

Link: https://www.federalreserve.gov/econres/feds/monetary-policy-and-the-corporate-bond-market-how-important-is-the-fed-information-effect.htm

Abstract:

Does expansionary monetary policy drive up prices of risky assets? Or, do investors interpret monetary policy easing as a signal that economic fundamentals are weaker than they previously believed, prompting riskier asset prices to fall? We test these competing hypotheses within the U.S. corporate bond market and find evidence strongly in favor of the second explanation—known as the “Fed information effect”. Following an unanticipated monetary policy tightening (easing), returns on corporate bonds with higher credit risk outperform (underperform). We conclude that monetary policy surprises are predominantly interpreted by market participants as signaling information about the state of the economy.

DOI: https://doi.org/10.17016/FEDS.2021.010

PDF: Full Paper

Author(s): Michael Smolyansky and Gustavo Suarez

Publication Date: 16 February 2021

Publication Site: Federal Reserve Board

When ‘closing corporate loopholes’ goes wrong

Mary Pat Campbell

Link: https://www.chicagobusiness.com/greg-hinz-politics/when-closing-corporate-loopholes-goes-wrong

Excerpt:

And that’s the context of that big $932 million tax hike on business Gov. J.B. Pritzker is pushing as part of his proposed 2022 budget.

Pritzker calls the proposal “closing corporate loopholes.” Arguably that’s true, at least in the sense that any tax break I don’t receive must be someone else’s undeserved loophole. But the proposal comes at the very time when population and jobs have begun to drop not only statewide but in the metropolitan area, and at a time when the state refuses to confront its ever-rising pension debt. Not to mention Chicago’s murder and car-jacking wave. Or what Cook County Assessor Fritz Kaegi is up to.

…..

In fairness to Pritzker, Illinois is not the only state to be moving its tax structure in his proposed direction, at least in part. For instance, according to the Tax Foundation, a Washington research group that’s fairly conservative but also frequently cited in economic circles, only 16 states grant the full accelerated depreciation that’s now in federal tax code. Pritzker’s proposed change there is worth $214 million a year.

Author(s): Greg Hinz

Publication Date:

Publication Site: Crain’s Chicago Business

If Pritzker and Welch really want voters’ trust, they’ll do this

Mary Pat Campbell

Link: https://www.chicagobusiness.com/joe-cahill-business/if-pritzker-and-welch-really-want-voters-trust-theyll-do

Excerpt:

If Pritzker and Welch are serious about winning trust, they’ll allow Illinoisans to vote on a standalone constitutional amendment repealing the so-called “pension protection clause.” To build public support and treat retirees fairly, such an amendment could be narrowly drawn to permit only reductions in future pension increases under the COLA mechanism.

Sure, public employee unions are likely to fight any change in pensions. But it’s worth trying to win their support. It can be done; Arizona unions backed a narrow amendment to a pension protection clause in that state’s constitution. If unions won’t cooperate, Pritzker and Welch should forge ahead anyway, as Rhode Island officials—led by Democrat Gina Raimondo—did in tackling a similar pension crisis.

Only after passing such an amendment and reducing the overall pension obligation can state officials justifiably ask taxpayers for money to close the remaining gap. Would a graduated income tax be the right way to raise the necessary revenue? Maybe. I’m not opposed to it on principle. The vast majority of states with an income tax charge higher rates on higher incomes. And the necessity of a constitutional amendment would give voters the final say.

Author(s): Joe Cahill

Publication Date: 25 February 2021

Publication Site: Crain’s Chicago Business

St. Louis mayor vetoes firefighters’ pension change; action sets up a veto override fight when aldermen reconvene April 19

Mary Pat Campbell

Link: https://www.stltoday.com/news/local/govt-and-politics/st-louis-mayor-vetoes-firefighters-pension-change-action-sets-up-a-veto-override-fight-when/article_b2c1a7d3-3c7c-52d1-b2ff-98fb5096d473.html

Excerpt:

Warning that it would be “fiscally irresponsible,” Mayor Lyda Krewson on Thursday vetoed a bill that would return supervision of all city Fire Department pensions to a firefighter-controlled board.

The Board of Aldermen earlier this month approved the bill despite warnings from Comptroller Darlene Green, Budget Director Paul Payne and others that the measure would reverse some reforms enacted in 2012 that put a check on the city’s pension liabilities.

Krewson, in her veto message to aldermen, said she shared those concerns.

Author(s): Mark Schlinkmann

Publication Date: 25 February 2021

Publication Site: St. Louis Post-Dispatch

Gov. Wolf puts critic back on $60 billion pension board

Mary Pat Campbell

Link: https://www.inquirer.com/news/torsella-psers-garrity-muth-20210225.html

Excerpt:

In November, Democrat Joseph Torsella lost his position as an overseer of Pennsylvania’s $60 billion school pension fund when he lost reelection as state treasurer. But on Thursday, Gov. Tom Wolf tapped Torsella to return to the PSERS board as his representative.

The appointment, which requires majority approval by the State Senate, would restore Torsella to a growing reform bloc on the 15-member board for PSERS. That stands for Public Schools Employees’ Retirement System, which sends checks to about 250,000 retired teachers and other former school workers.

During his single four-year term as treasurer, Torsella, by dint of his position, served on the PSERS board and that of its smaller, $30 billion sister fund for state employees, known as SERS.

Author(s): Joseph N. DiStefano

Publication Date: 25 February 2021

Publication Site: Inquirer

Pension fund agrees to push further on corporate board diversity

Mary Pat Campbell
Pension fund agrees to push further on corporate board diversity

Excerpt:

 The board that manages the state’s $86.9 billion pension fund voted Wednesday morning to increase its standards for board diversity and equal employment opportunity at the thousands of companies it invests in, and to promote shareholder proposals related to health coverage and pandemic hazard pay.

The Pension Reserves Investment Management (PRIM) Board signed off on the policy changes developed by Treasurer Deborah Goldberg and recommended by a PRIM subcommittee that would direct PRIM to use its proxy vote as a shareholder to vote against board nominees if the gender and racial makeup of the company’s board do not meet PRIM’s standards, and to support requirements that companies be diverse in terms of race, gender, use of minority-owned businesses as contractors, and use of women-owned businesses as contractors.

Author(s): COLIN A. YOUNG

Publication Date: 25 February 2021

Publication Site: Lowell Sun

Will Connecticut’s New Vaccine Plan Achieve Its Goals?

Mary Pat Campbell

Link: https://www.governing.com/now/Will-Connecticuts-New-Vaccine-Plan-Achieve-Its-Goals.html

Excerpt:

 In announcing a surprising new vaccine distribution plan Monday, Gov. Ned Lamont said Connecticut’s approach was designed with two factors in mind: speed and equity.

“Broadly speaking, these are our goals for vaccination,” Lamont said. “Get as many people vaccinated as we possibly can … and complement that with equity, knowing full that our Black and brown population here in this state and around the country are twice as likely to suffer complications from an infection and half as likely to get vaccinated.”

But experts are divided on whether the new strategy will truly accomplish those goals — and particularly whether it will truly maximize equity. While state and hospital officials say this plan, which establishes priority groups almost strictly by age, will create a smoother, faster rollout, skeptics worry the new eligibility guidelines are not as inclusive as those the Lamont administration jettisoned.

Author(s): EMILY BRINDLEY, HARTFORD COURANT

Publication Date: 25 February 2021

Publication Site: Governing

Lawmaker Proposes to Ban AI and Its Discriminatory Impact

Mary Pat Campbell

Link: https://www.governing.com/security/Lawmaker-Proposes-to-Ban-AI-and-Its-Discriminatory-Impact.html

Excerpt:

The Washington state Legislature, which has proposed legislation in the past to tackle issues such as data privacy and the use of facial recognition tech, is now reviewing a bill that would regulate the use of “automated decision systems” and AI technology within state government.

According to the bill, these systems use algorithms to analyze data to help make or support decisions that could result in discrimination against different groups or make decisions that could negatively impact constitutional or legal rights.

As a result, Senate Bill 5116 aims to regulate these systems to prevent discrimination and ban government agencies from using AI tech to profile individuals in public areas.

Author(s): KATYA MARURI, GOVERNMENT TECHNOLOGY

Publication Date: 26 February 2021

Publication Site: Governing

NYC Pension Funds Rebound After Missing Fiscal 2020 Target

Mary Pat Campbell

Link: https://www.ai-cio.com/news/nyc-pension-funds-rebound-missing-fiscal-2020-target/

Excerpt:

New York City’s five pension systems have bounced back from a 4.4% return for fiscal year 2020 that missed an actuarial target of 7%, to return roughly 18% in the first seven months of fiscal year 2021, according to a report from New York State Comptroller Thomas DiNapoli.

Since fiscal 2012, the pension funds, which had approximately $239.8 billion in assets under management (AUM) as of November, have earned an average of 7.5% annually on their investments.

According to the Comptroller Office’s Review of the Financial Plan of the City of New York, pension contributions have stabilized after growing rapidly for many years, mainly due to higher-than-expected investment returns and savings from lower-cost pension plans enacted for employees hired after March 2012. However, the contributions are still forecast to total $10.1 billion in fiscal 2022.

Author(s): Michael Katz

Publication Date: 25 February 2021

Publication Site: ai-CIO

Senate passes bill boosting ERB pension fund

Mary Pat Campbell

Link: https://www.abqjournal.com/2363378/senate-passes-bill-boosting-pension-fund-contributions.html

Excerpt:

New Mexico’s teacher pension fund would benefit from stepped-up taxpayer-funded contributions under a bill that won Senate approval Thursday.

Senators voted 36-6 to pass the measure, Senate Bill 42, which would also extend for two more years a program for retired educators who return to the classroom.

….

Specifically, the bill would increase the taxpayer-funded employer contribution rate paid into the pension fund by 1 percentage point over each of the next four years – taking the rate from 14.15% to 18.15% by the 2025 budget year. Employee contribution rates into the fund would not change.

Author(s): DAN BOYD / JOURNAL CAPITOL BUREAU CHIEF

Publication Date: 25 February 2021

Publication Site: Albuquerque Journal

Ontario Pension Has Worst Loss Since 2008 on Bad Covid Bets

Mary Pat Campbell

Link: https://www.bloomberg.com/news/articles/2021-02-25/ontario-pension-has-worst-loss-since-2008-on-private-equity-hit

Excerpt:

Ontario Municipal Employees Retirement System, one of Canada’s largest pension funds, posted its worst result since the global financial crisis after suffering big losses in its private equity and real estate holdings.

The pension fund, known as Omers, lost 2.7% on its investments last year, pushing assets to C$105 billion ($84 billion). It’s the worst result since 2008, when it lost 15.3%.

….

The pension fund fell far short of its 6.9% return benchmark, and also trailed the average 10% increase of Canadian pension plans, as estimated by Bank of New York Mellon Corp.

Author(s): Paula Sambo

Publication Date: 25 February 2021

Publication Site: Bloomberg