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New Jersey playing the lottery with pension plan


July 9, 2017 at 3:00 AM

One day before the June 30 budget deadline, when all eyes were focused on the controversial Horizon Blue Cross Blue Shield of New Jersey bill, state lawmakers pulled off a remarkable sleight of hand.

Quickly and quietly, with little to no outside analysis, the Legislature approved Gov. Chris Christie’s unprecedented plan to transfer the New Jersey Lottery’s assets and revenue stream to the beleaguered state pension system, which has the largest unfunded liability in the nation.

A report by Municipal Market Analytics called the governor’s plan “magic” and said it was “an accounting scheme (and gamble) for optics and budgetary relief.”

Just like that, the pension system could claim an additional value of $13.535 billion — the value the bill put on the lottery — and book a corresponding reduction in its unfunded liability.

Just like that, the pension system was promised approximately $1 billion a year in revenue from the lottery.

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Pence and  Trump


New figures don’t negate fundamental funding problems, but they bring some good news for the beleaguered pension system

The board that oversees New Jersey’s beleaguered public-employee pension system received some good news yesterday as new figures showed overall investment returns finished ahead by about 7 percent last year.

While those returns didn’t live up to the 7.9 percent assumption that’s set in state law for the pension system, they marked a significant improvement over the year before, when investments generated less than 1 percent returns.

The new calendar-year figures also suggested a much better outlook for the pension system — which is deep in debt thanks to years of underfunding by the state — after figures released last year for the 2016 fiscal year showed negative returns for the first time in nearly a decade. (The fiscal year runs on a July 1 to June 30 schedule, mirroring the state budget cycle.)

The full dive into the 2016 calendar-year investment returns took place yesterday during a public meeting of the State Investment Council, the board that sets policy for the $72 billion pension system. State officials said the improvement largely occurred during the second part of 2016, with areas like equity and real estate leading the way after a poor start that included plummeting energy prices. They also released new figures for alternative investments like hedge funds and private equity that showed a slight increase in fees but an overall reduction in other costs like bonuses for performance.

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3 Ways Politicians Play Politics With Public Employee Pensions

Christine Todd Whitman

Rachel Greszler / December 21, 2016

State and local governments have promised an estimated $5.6 trillion in pension benefits that they cannot afford to pay. (Photo: iStock Photos)


Rachel Greszler

Rachel Greszler is a senior policy analyst in economics and entitlements at The Heritage Foundation’s Center for Data Analysis. Read her research.

Pensions are a huge part of public employees’ compensation, often providing a quarter to a third of their total compensation. A new report from the American Legislative Exchange Council shows how politicians play politics with public pensions, threatening public employees and taxpayers alike.

State and local governments across the U.S. hold about $3.8 trillion in public employee pension assets. Unfortunately, the politicians and pension officials who manage these assets often sacrifice higher returns for personal and political gain.

Pension plan officials are supposed to look out for the best interests of pension beneficiaries, but the American Legislative Exchange Council report, “Keeping the Promise: Getting Politics Out of Pensions,” tells a different story:

Rather than investing to earn the best return for workers, [lawmakers and pension plan officials] use pension funds in a misguided attempt to boost their local economies, provide kickbacks to their political supporters, reward industries they like, punish those they don’t, and bully corporations into silence and behaving as they see fit.

The report shows three ways that pension officials play politics with public worker pensions:

1. Economically targeted investments. These are a way for public pension plans to buoy local projects at the cost of receiving significantly lower returns. These subpar investments strip pensions of billions of dollars in returns. Alabama is the biggest offender, with over 16 percent of its pension assets invested in them.

One particularly egregious example is Alabama’s pension fund investment in the troubled oil repair and shipbuilding firm Signal International. Alabama invested $21 million and later loaned $73 million to Signal (despite three years of it providing 11 percent losses).

Shortly thereafter, Signal was forced to pay $21 million to settle what was called “one of the largest cases of labor trafficking in modern times.” Signal later entered bankruptcy and was purchased by one of Alabama’s pension funds.

2. Political kickbacks. These allow private individuals and companies to buy access to public pension investments by making political contributions to certain local politicians, and by lobbying pension funds to invest in them. Investments based on politics instead of performance costs the average pension fund over $200 million a year.

The California Public Employees’ Retirement System, known as CalPERS, suffered massive losses from political investments, largely at the helm of board member and union leader Charles Valdes.

Despite having no investment experience and twice filing for personal bankruptcy, Valdes spent 25 years as a CalPERS board member where he added significantly to pension deficits by granting investment contracts to political donors and engaging in suspect behavior with other board members.

During his 13 years as the investment committee chair, CalPERS experienced one of the worst investment performances of any public pension plan in the nation.

3. Political crusades. These are a way for politicians and pension officials to use pension investments to advance political views or causes. The most common example of late is pension funds divesting from energy companies.

Since divestment is based on political agendas instead of returns, it should come as no surprise that it results in significantly lower returns. A hypothetical portfolio showed divestment from energy products resulted in a 23 percent loss over five years, compared to no divestment.

There are also significant administrative and frictional costs (the impact of selling large quantities at once). Administrative costs for large college endowments were 12 times higher than socially conscious funds, and frictional costs were estimated to reduce the value of a fund by 2 to 12 percent over 20 years.

Moreover, political crusades have extended from certain sectors of the economy to personal objections.

For example, the American Federation of Teachers union has used its influence over an estimated $1 trillion in pension assets to “blacklist” about three dozen individual hedge fund managers who donated to causes and organizations that the union doesn’t like. Consequently, pension funds in at least seven states divested their pensions from these hedge fund managers to some degree.

One of the main reasons state and local pensions can get away with politically motivated pension fund management is that they lack adequate regulations and enforcement. State and local pensions are not subject to the federal Employee Retirement Income Security Act of 1974, but rather are regulated by states themselves.

The easiest way for states to eliminate the negative influence of politics in pensions is to shift to defined contribution plans. This would require governments to pay their workers’ retirement benefits immediately and would prevent politicians from having any role in workers’ personal investment decisions. Moreover, taxpayers would no longer be on the hook for unfunded promises.

Short of a complete shift to defined contribution plans, however, states need to strengthen fiduciary responsibilities to ensure pension officials are acting in the exclusive interests of participants, require greater oversight and transparency of public pension operations, and diversify pension boards.

State and local governments have already promised an estimated $5.6 trillion in pension benefits that they can’t afford to pay. Governments cannot afford to continue sacrificing valuable investment returns for the sake of short-term political and personal gains.

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Dallas Police and Fire Pension Board ends run on the bank, stops $154M in withdrawals



The Dallas Police and Fire Pension System’s Board of Trustees suspended lump-sum withdrawals from the pension fund Thursday, staving off a possible restraining order and stopping $154 million in withdrawal requests.

The system was set to pay out the weekly requests Friday. Pension officials said allowing the withdrawals would leave them without the liquid reserves required to sustain the $2.1 billion fund.

“Our situation is currently critical, and we took action,” board chairman Sam Friar said.

Pension officials and many police and firefighters have blamed Dallas Mayor Mike Rawlings for forcing the latest run on the bank. Dozens of retirees rushed to request withdrawals after Rawlings filed a lawsuit Monday to stop the withdrawals.

By then, more than $500 million had already gushed from the fund since the board proposed benefit cuts in August.

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Pension Meeting Ends in Cliffhanger


It was supposed to be another staid meeting of the board that oversees New Jersey’s $71 billion public-employee pension system. It ended with a dramatic deadlocked vote on a key policy issue — how heavily pension assets should be invested in hedge funds — and an equally dramatic threat from one veteran board member to immediately tender his resignation. John Reitmeyer, NJ Spotligh Read more

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NJ’s pension investments fall short of targets



The investments made by New Jersey’s pension funds fell short of targets and well below the double-digit gains of recent years, but it still outperformed benchmarks, state officials said Wednesday.

And amid sustained criticism from unions and some legislators over increased spending on alternative investments – like hedge funds and private equity funds – the state’s investment returns were driven largely by those non-traditional accounts, officials said.

But the returns into the public employee pension fund aren’t enough to keep up with the flow of cash out every year to pay retirees, underscoring the need for greater contributions from the state, those officials said. Governor Christie has cut the state’s contributions the last three budgets amid declining revenues to the state, but his reduced payments compounded years of partial contributions to the fund by prior administrations, creating an unfunded liability today of between $40 billion and $80 billion, depending on the accounting source.