1. TOTAL HOLDINGS AND INVESTMENTS OF MAJOR PUBLIC PENSION SYSTEMS RISE TO OVER $3 TRILLION, REACHING HIGHEST LEVEL IN FORTY-FIVE YEARS: The U.S. Census Bureau has released its quarterly survey of public pensions for the fourth quarter of 2013. For the 100 largest public employee pension systems in the country, cash and security holdings totaled $3,191.5 billion for the fourth quarter of 2013, reaching the highest level since the survey began collecting data in 1968 (The summary is based on the quarterly survey of public pensions, which consists of a panel of the 100 largest state and local government pension systems, as determined by the total cash and security holdings reported in the 2007 census of governments. These 100 systems make up 89.4% of financial activity among such entities, based on that census. Each of the 100 systems represents itself only. The data are not subject to sampling error, but are subject to various non-sampling errors, such as errors of nonresponse and respondent error.) Cash and security holdings had a quarter-to-quarter increase of 4.2%, from $3,061.6 billion last quarter and a year-to-year increase of 12.5%, from $2,836.8 billion in the fourth quarter of 2012. Earnings on investments totaled $165.7 billion in the fourth quarter of 2013. Corporate stocks had a quarter-to-quarter increase of 5.9%, from $1,058.7 billion to $1,121.4 billion in the fourth quarter of 2013. Corporate stocks year-to-year increased 18.1% from $949.4 billion in the fourth quarter of 2012. Corporate stocks composed 35.1% of the total cash and security holdings. Corporate bonds had a quarter-to-quarter increase of 4.6%, from $322.1 billion to $337.0 billion in the fourth quarter of 2013. Corporate bonds year-to-year decreased 1.3%, from $341.4 billion in the fourth quarter of 2012. Corporate bonds amounted to 10.6% of the total cash and security holdings. International securities had a quarter-to-quarter increase of 4.4% from $637.7 billion to $665.9 billion in the fourth quarter of 2013. International securities year-to-year increased 14.2%, from $583.3 in the fourth quarter of 2012. International securities made up 20.9% of total case and security holdings. Federal government securities had a quarter-to-quarter increase of 0.3%, from $266.1 billion to $267.0 billion in the fourth quarter of 2013. Federal government securities year-to-year increased 5.9%, from $252.2 billion in the fourth quarter of 2012. Federal government securities equaled 8.4% of the total cash and security holdings. Government contributions had a quarter-to-quarter increase of 23.9%, from $22.3 billion to $27.6 billion in the fourth quarter of 2013, and a year-to-year increase of 4.4%, from $26.4 billion in the fourth quarter of 2012. Employee contributions had a quarter-to-quarter increase of 25.5%, from $8.3 billion to $10.4 billion in the fourth quarter of 2013, and a year-to-year increase of 0.8%, from $10.3 billion in the fourth quarter of 2012.
2. PENSION FUNDS JOIN IN FEE RESISTANCE: Tired of paying large sums to invest in private equity funds, a group of small and midsize pension plans has banded together successfully to bargain for lower fees. According to the Wall Street Journal, the deal is a sign of how some investors are trying to reclaim power from money managers, and the first time such a consortium has won major concessions. Led by the $11 billion Orange County Employees Retirement System, six state and county pension funds have reached a tentative agreement to endorse the hiring of Pantheon Ventures to invest between $300 million and $1 billion a year in various private equity funds over the next few years. The group expects to pay management fees of between 0.26% and 0.55% of the money invested, depending on how much is placed in funds. That figure compares with management fees that can be as much as 1% of committed capital to invest with a "fund of funds" like Pantheon. Such firms allocate money to private-equity funds on behalf of investors.
3. LOWER-INCOME INDIVIDUALS WITHOUT PENSIONS MISS OUT: In 2010, only 19% of individuals ages 50-58 whose household incomes were less than 300% of the poverty line participated in a pension of any kind at their current jobs, compared to 56% of those above 300% of poverty. A new working paper from Center for Retirement Research at Boston College investigates this pension gap. In particular, the paper decomposes the pension participation rate into its four elements in order to compare coverage between higher- and lower-income individuals: 1) the fraction of people who are currently working (the employment rate); 2) the fraction of workers who are in firms that offer pension benefits to at least some workers (the offer rate); 3) the fraction of workers who are eligible for pension benefits, conditional on being in a firm where it is offered (the eligibility rate); and 4) the fraction of workers who enroll in a pension plan when they are eligible (the take-up rate). The paper finds that the substantial pension gap between higher- and lower-income individuals is driven primarily by the lower-income group’s lower employment rate and the smaller probability of working for an employer that offers pensions; when lower-income workers do have a pension plan at work, their eligibility and take-up rates are nearly equivalent to higher-income workers. The authors also found that the factors associated with a higher value for each element of pension participation are very consistent: higher education and income, previous pension history, and job characteristics including firm size, occupation, job tenure, and union status. Together, these findings suggest that policies such as coverage gap between older, lower-income individuals and their higher-income contemporaries; instead, greater pension participation requires more jobs and, in particular, more “good jobs.” WP#2014-2 (March 2014).
4. USING AUTOMATIC ESCALATION IN PUBLIC SECTOR RETIREMENT PLANS TO INCREASE SAVINGS: Center for Local and State Excellence has released a new issue brief that examines automatic escalation options for public sector retirement plans and supplemental defined contribution plans. The brief looks at how automatic escalation features can help public employees save more for retirement, and the challenges and opportunities state and local governments may encounter as they consider automatic escalation policies. As states and localities continue to modify their retirement packages, public employees may need to save more to ensure that they have an adequate retirement income. This study is the first one to examine automatic escalation options for public sector retirement plans and supplemental defined contribution plans. Using interviews, case studies, and a review of academic and practitioner research, the brief offers recommendations on how governments might incorporate an automatic escalation policy into their defined contribution retirement plans, including:
- Ensure that employee groups are part of the process in working with elected and appointed leaders who support an automatic escalation policy.
- Acknowledge that there is no uniform approach to automatic escalation policies. The policy should reflect a government’s unique workforce preferences and policy environment.
- Reduce or eliminate as many barriers to enrollment as possible.
- Communicate with employees about the benefits of the feature when it is adopted.
- Consider implementing it in conjunction with other features, such as automatic enrollment.
The report also includes case studies of successful implementation of automatic escalation in supplemental defined contribution plans for some public employees in Missouri, Ohio, and Virginia. (14-528, March, 2014.)
5. U.S. RETIREMENT ASSETS TOTAL $23 TRILLION IN FOURTH QUARTER 2013: Investment Company Institute reports that total U.S. retirement assets were $23.0 trillion as of December 31, 2013, up 5.0% from $21.9 trillion on September 30, 2013 and up 15.6% from the year end 2012. Retirement savings accounted for 34% of all household financial assets in the United States at the end of the fourth quarter of 2013. Assets in individual retirement accounts totaled $6.5 trillion at the end of the fourth quarter of 2013, an increase of 5.3% from the end of the third quarter. Defined contribution plan assets rose 5.1% in the fourth quarter to $5.9 trillion. Government pension plans (including federal, state, and local government) held $5.6 trillion in assets as of the end of December, a 5.6% increase from the end of September. Private sector defined benefit plans held $3.0 trillion in assets at the end of the fourth quarter of 2013, and annuity reserves outside of retirement accounts accounted for another $2.0 trillion.
6. POLICE OFFICER DENIED OPPORTUNITY TO TAKE PROMOTIONAL EXAM BECAUSE SHE WAS DUE TO GIVE BIRTH THE SAME DAY: In a case of bad timing, Thompson, an officer with the New York City Police Department, was scheduled to take a sergeant’s exam on a date certain. However, she was also scheduled for something else that day: giving birth to a baby. Since fetuses do not take requests, Officer Thompson asked for an accommodation from the city to reschedule the test. Her request was denied, despite the fact that promotional exams were routinely rescheduled for other reasons. Officer Thompson filed a charge of discrimination against the City of New York, alleging that the testing accommodation policy, administered by the Department of Citywide Administrative Services, was unlawful as applied to her. Because DCAS administers testing for all civil service jobs, the NYPD was not responsible for denial of her request. She claimed that the denial of her request for accommodation is invalid under state, federal and local discrimination laws. While her case has yet to be adjudicated at any level, her situation is common among pregnant working women. Employers routinely deny costless accommodations that impose no hardship and that, in many cases, are made available to other workers with circumstances or conditions that conflict with workplace obligations. Officer Thompson is the latest victim of a system that fails to see pregnancy as a condition worthy of even minor accommodation. The consequences of this mindset for individual women, like Officer Thompson, and women in general, is devastating. When Officer Thompson’s request was denied, she was told that her “request to postpone this test due to the possibility that you may give birth on, or shortly after the test date, is not approvable.” Incredibly, an alternative testing day had already been set aside for those whose religious observance conflicted with the scheduled date. This story comes to us from Verdict.
7. THE SURPRISING LAW OF UPSKIRTING: This one, also fromVerdict, will blow you away. Transit police officers launched a sting operation to catch an alleged upskirter on a Boston trolley -- a man who had been observed surreptitiously videotaping up the skirt of a woman sitting, facing him, across the aisle. A fellow rider watched as the “upskirter” held his own smartphone at waist level and videotaped the crotch of the woman, who seemed unaware that she was starring in his film. The fellow rider advised her, whereupon a report was made to transit police, who then sent an undercover female officer, in a skirt of course, to sit across from the alleged upskirter. Right on schedule, at the same time the next day, the upskirter focused his telephone camera on the crotch of the decoy officer, and held the phone steady for a minute. The red light on the phone gave away that it was videotaping. Transit police then approached the miscreant, advised him to stop, engaged in a dispute about his turning over his phone, and ended up arresting him. There was a problem with the undercover operation, however, and the court case that followed. What the Recording-Tom did was simply not a crime under Massachusetts law. The subway creep was charged with criminalized willfully videotaping another person who is nude or partially nude, with the intent secretly to conduct or hide such activity, when the other person would have a reasonable expectation of privacy. In reversing the conviction, Supreme Judicial Court of Massachusetts found that the women were not either nude or partially nude. Quite to the contrary, they were fully clothed. In addition, a public trolley is not a place or circumstance where a person would have a reasonable expectation of privacy. Thus, even if the gawker did videotape up the skirts of female riders, without their consent, it was not a crime under the section charged. An amendment to the statute has eliminated the two obstacles under prior law. Hmmm. Things sure have changed since the old-shiny-dime-in-the-penny-loafer trick.
8. DC PLAN SPONSORS EVALUATE IF CURRENT INVESTMENT OPTIONS ACHIEVE PARTICIPANT RETIREMENT INCOME NEEDS: A survey released by SEI found that defined contribution plan sponsors are evaluating their current target-date-funds, and considering whether or not custom TDFs are a better option. Of those plan sponsors already offering TDFs, 12% currently use custom funds rather than proprietary or pre-packaged options. The poll suggests that percentage is rising, as more than a third of those surveyed said their organization is likely or somewhat likely to implement or revise custom target date solutions in the next 18 months. Last year, the Department of Labor offered guidance to plan sponsors, suggesting those offering proprietary or pre-packaged TDFs consider custom or non-proprietary options. The majority of respondents only offer DC plans to employees, as 47% said their organization still offers a defined benefit plan, as well. Notably, 39% of plan sponsors only offering a DC plan said the objective of the plan was to provide supplemental retirement income. This goal might suggest they feel their DC plan cannot provide sufficient retirement income to be primary, or that employees' primary retirement income will come from either Social Security or savings vehicles outside of the DC plan. Real nice.
9. DATING ADS FOR SENIORS: BEATLES OR STONES? I still like to rock, still like to cruise in my Camaro on Saturday nights and still like to play the guitar. If you were a groovy chick, or are now a groovy hen, let's get together and listen to my eight-track tapes.
10. ADULT TRUTHS: Map Quest or Google Maps really need to start their directions on #5. I am pretty sure I know how to get out of my driveway.
11. TODAY IN HISTORY: In 1958, Fidel Castro’s rebels attacked Havana.
12. CYPEN & CYPEN FORMS STRATEGIC ALLIANCE: Cypen & Cypen is pleased to announce formation of a strategic alliance with Klausner, Kaufman, Jensen & Levinson. Steve Cypen and Bob Klausner have almost 100 years of public pension plan experience between them, and have agreed to work together to bring additional resources and talents to their respective clients. Cypen & Cypen will maintain an office in Miami Beach, Florida, where the firm has been headquartered since 1946. KKJL is expanding its office in Plantation, Florida, and expects to move to its new facility in September, 2014. Meanwhile, Cypen & Cypen wishes Alison Bieler a rewarding sabbatical, which she has taken in order to spend more time with her family.
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