WASHINGTON - Replacing the 30-year Treasury bond as the benchmark for valuing pension fund liabilities with a security that has a higher interest rate would lower participants' lump-sum payouts, cut employer contributions and lower the PBGC's premium revenues, according to a draft of a GAO report to be released later this month.
The General Accounting Office report noted that an increase in the benchmark from 5% to 6% would cause an 80% funded pension fund to become 90.9% funded, lowering its PBGC insurance premium, and would decrease the amount of tax-deductible contributions an employer may make.
N.Y. State Common may require $1.1 billion cash contribution
ALBANY, N.Y. - The New York State Common Retirement Fund might need a $1.1 billion cash infusion from the state April 1, when the next fiscal year starts, if equity market returns don't improve, state Comptroller Alan Hevesi warned.
The state contributed $138 million to the fund during the current fiscal year. Unless markets rebound, the $97 billion plan also is likely to increase local government contribution rates to 11% of payroll next year from about 1% now, Mr. Hevesi said. For local police and firefighters, the contribution rates could rise from zero to 15% of payroll, he said. Contribution rates for the 2004 fiscal year will be determined by the value of the fund on March 31.
CalSTRS projects future funding levels
SACRAMENTO, Calif. - CalSTRS' funding level is projected to decline steadily to 78.1% by June 30, 2011, from 98% as of June 30, 2001, according to the median of a preliminary asset-liability study developed by the fund's external actuary, Milliman.
The mean return projection is higher, but still falls short of the pension fund's actuarial assumption of 8%. If the mean projection were met, the funding level of the $92 billion California State Teachers' Retirement System, Sacramento, would drop to 84.2% by June 30, 2011.
The results, which CalSTRS spokeswoman Sherry Reser cautioned are preliminary, could cause the CalSTRS board to reconsider its strategic asset mix or develop options for further modeling, a Milliman analysis said. The target asset mix now is 61% equities, 27% debt, 6% real estate and 6% private equity
New York City plans target terrorist ties
NEW YORK - New York City Comptroller William C. Thompson submitted shareholder resolutions to Halliburton Co., General Electric Co. and Conoco/Phillips, asking them to review their policies on dealings with countries that are linked to terrorist activities.
The resolutions were submitted on behalf of New York City's $12.3 billion Police Department Retirement Fund and $4.3 billion Fire Department Retirement Fund, although all five funds comprising the $65.9 billion New York City Retirement System are invested in the three companies.
Halliburton, which has an office in Iran, challenged the resolution and asked the SEC not to sanction the company if it omits the proposal from its 2003 proxy materials. The SEC has not yet responded. The New York City Retirement System has more than $23 million invested in the corporation.
Meanwhile, the comptroller's office and GE have begun talks about the firm's Canadian subsidiary General Electric Hydro, which does business with the Iranian government. The city's five funds have a total of $951 million invested in GE.
Conoco/Phillips has not yet challenged the resolution; it has operations in Iran and Syria through U.K. subsidiary Conoco Ltd. The five funds have $124 million invested in the oil company.
More DB plans lean toward bundling, survey shows
GREENWICH, Conn. - Corporate defined benefit plans with $25 million to $250 million in assets are planning to bundle investment management and administration, according to a new Greenwich Associates study.
Of the 913 plan sponsors surveyed, 18% will bundle their defined benefit services at some point, and an additional 7% expect to hire a bundled provider within the next 12 months. Another 4% of respondents said they may consolidate their defined contribution and defined benefit plans with a single provider of total retirement services.
The leading reason is plan efficiencies and cost savings, according to 74% of respondents; 71% said improved quality of vendor management and overall service was a chief reason; and 67% cited improved reporting and advisory tools for participants or employees.
San Bernardino County names consultant finalist
SAN BERNARDINO, Calif. - The $3 billion San Bernardino County Employees' Retirement Association named Mercer Investment Consultants, Callan Associates, New England Pension Consultants and Angeles Investment Advisors as finalists for general consultant, said Don Pierce, investment analyst. The board will make a selection on March 10, he said. Previous consultant Ennis Knupp was terminated last fall.
The new consultant will interview officials at Adams Street and Pathway Capital, which are under consideration to handle the system's allocation of 7% of assets in private equity, Mr. Pierce said.
Dave Eager starts new venture as a consultant to vendors
LOUISVILLE, Ky. - David Eager and Glenn B. Davis formed a vendor consulting firm, Eager & Davis LLC, Louisville.
Mr. Davis had been managing his own consulting firm, Davis Consulting, Louisville, since 2000. The consulting practice is being merged into Eager & Davis, said Mr. Eager
Mr. Eager was director-product development at Driehaus Capital Management Inc., Chicago, where he will not be replaced, said Cheryl Cannistra, a spokeswoman.
Median fund down 9.12% in 2002, report shows
LOS ANGELES - The median fund in the Russell/Mellon U.S. Master Trust Universe returned -9.12% for 2002, the poorest performance since 1987.
The median fund returned 4.74% for the fourth quarter. Only 19 plans had positive returns in 2002, according to Tim Clark, senior client relationship manager.
The 428 corporate, foundation, endowment and public funds in the universe have a combined market value of $763 billion.
Legislation may force Middlesex to reorganize
BILLERICA, Mass. - The Middlesex Regional Retirement Board might reorganize its $510 million retirement system under legislation before the state House of Representatives. The bill, introduced by state Rep. William Greene, D-Billerica, was filed on behalf of six member towns whose officials oppose increased assessments and seek more control of the system.
The legislation seeks to abolish the current five-member board, create a new seven-member regional retirement board and appoint a new executive director to replace James Fahey. Under the new system proposal, member towns may issue pension obligation bonds.
Mr. Fahey, who was Middlesex County treasurer before the county was disbanded in 1997, doesn't think the change is necessary but has "a great deal to do with the frustration of the times." The legislation, which was filed without consulting the existing board, has yet to reach the floor of the Legislature, said a spokesman for Mr. Greene.
Fund raising drops for venture capital
NEW YORK - Venture capital fund raising declined sharply last year, with 108 funds raising $6.9 million for the year ended Dec. 31, compared with 331 funds raising $40.7 billion in 2001, according to Thomson Venture Economics and the National Venture Capital Association. Taking into account 26 funds that reduced their asset sizes, net fund raising last year was only $1.9 billion, the lowest level since 1991. In the fourth quarter, 31 funds raised $1.2 billion, far below the 92 funds that received commitments of $5.5 billion for the fourth quarter of 2001.
Sprint unitizes four 401(k) options
WESTWOOD, Kan. - Sprint Corp. has unitized a portion of its $2.3 billion 401(k) plan, replacing retail mutual funds and index funds with separately managed portfolios managed by defined benefit managers, said Bill Searcy, pension and savings trust officer.
Executives replaced four funds in the specialty fund tier of its 401(k) plan, Mr. Searcy said. Replaced were a value index with a value strategy account, a Russell 2000 growth index with a small-cap growth separately managed account, a retail large-cap stock fund with a separately managed large-cap aggressive growth strategy and a retail mutual fund with a large-cap growth stock strategy, he said. He wouldn't name the managers.
Plan executives made the changes in Sprint's 18-month-old lineup to lower participant fees, Mr. Searcy said. The mutual funds were intended to be temporary.
Whirlpool expects $63 million pension expense in 2003
BENTON HARBOR, Mich. - Whirlpool Corp. expects a pension expense of $63 million in 2003 and will make a $20 million cash contribution to its U.S. pension fund this year, according to the company's fourth-quarter earnings report. Whirlpool recorded a $151 million after-tax, non-cash charge to equity in the fourth quarter because plan assets dropped due to declining markets. Whirlpool also lowered its discount rate assumptions for its pension plans to 6.75% from 7.5%, and lowered its long-term return assumption to 8.75% from 10%.
Whirlpool had $1.56 billion in U.S. pension assets as of Dec. 31, 2001, according to the firm's most recent annual report.
St. Paul Cos. contributes $140 million to pension plans
ST. PAUL, Minn. - The St. Paul Cos. contributed $140 million to its pension plans at the end of the fourth quarter, according to an earnings statement. It reduced its expected long-term rate of return to 8.5% from 10% and reduced its discount rate assumption to 6.5% from 7%, according to the earnings statement.
The money was allocated to internal portfolio managers, said Mark Hammel, a spokesman. St. Paul Cos. manages most of its pension assets internally, he said.