NEW YORK Up to three-quarters of all U.S. corporate pension plans may be frozen or terminated within the next five years, according to a study released by consulting firm McKinsey & Co. McKinsey said the return of private defined benefit plans to healthy fund levels will, ironically, quickly boost the share of companies opting to freeze or terminate their plans from the current level of 25%.
In addition, McKinsey predicts looming regulatory and accounting changes will force plan sponsors to quickly adopt sharply different approaches to portfolio construction, leaving long-dominant money managers competing with insurers and investment banks to meet their needs. At least $1 trillion of the $2.3 trillion now in private-sector pension plan plans will be invested in entirely different products and solutions by 2012, according to the study. Allocations to active domestic long-only equities are expected to plummet by 67%, with long-duration fixed income, hedge funds and private equity picking up the bulk of those losses.
Knoxville narrows small-cap growth field
KNOXVILLE, Tenn. Knoxville City Employees Pension Fund selected three finalists to manage $35 million in active domestic small-cap growth equities, confirmed Michael Cherry, executive director of the $540 million fund. They are Columbia Partners, Pier Capital and Pinnacle Associates. Funding comes from an SSgA Russell 2000 growth index fund, where the money had been parked after the fund terminated Cortina Asset Management, which was running the small-cap growth allocation. Cortina was terminated when founder and CEO Joseph Frohna left the company in February, Mr. Cherry said. Fund officials are expected to choose a firm at the June 14 board meeting.
Summit Strategies assisted in the invitation-only search.
Montana 457 plan yanks TCW Galileo Select Equity fund
HELENA, Mont. Montana Public Employees Retirement Board voted to drop the TCW Galileo Select Equity fund as an investment option in its $260 million 457 plan and move money participants had in the fund to the Fidelity Contrafund, according to minutes of the boards April 12 meeting, released this month. The board also voted to remove the Vanguard Equity Income fund from probation; no further information was available. Roxanne Minnehan, executive director, did not return calls asking for comment.
Plan administrator CEO faces federal indictment
NASHVILLE, Tenn. Barry R. Stokes, CEO of 401(k) plan administrator 1 Point Solutions, was indicted by a federal grand jury in Nashville, Tenn., with embezzling more than $15 million from plans the company managed, according to a news release from the Nashville U.S. Attorneys Office.
Mr. Stokes, who was indicted May 10 on 78 counts and is also facing fraud and money-laundering charges from a previous indictment on Nov. 8, used the stolen money for Japanese art; real estate in Dickson, Tenn., and Austin, Texas; political campaign contributions; and psychic readings, among other purposes, according to the indictment.
Mr. Stokes is currently under federal custody in a Nashville jail, assistant U.S. Attorney Courtney D. Trombly said in an interview. 1 Point Solutions is currently in Chapter 11 bankruptcy protection, Ms. Trombly said.
David Baker, Mr. Stokes attorney, said Mr. Stokes has entered a plea of not guilty on all charges.
Georgia plans get OK to raise international
ATLANTA Georgia Gov. Sonny Perdue on May 14 signed a bill allowing state pension funds to increase their international equity and fixed-income allocations to 15% from the current 10%, effective July 1.
The $51.5 billion Teachers Retirement System of Georgia and the $16.5 billion Employees Retirement System of Georgia, both of Atlanta, will boost each of their international allocations to 15% over time, said Bill Cary, CIO of the Georgia Division of Investment Services; he would not elaborate.
The $650 million Georgia Firefighters Pension Fund, Conyers, hopes to make some additional allocations in the fall based on recommendations from investment consultant CSG, said Jim Meynard, executive director. The funds current international allocation is about 9%, Mr. Meynard said. He added the system would maintain a 60/40 equity/fixed-income mix as required by state law.
A bill allowing state pension funds to invest in alternatives passed the Senate but was not voted on in the House before the legislative session ended in April.
Fairfax Ed slates global TAA shortlist hunt
FAIRFAX, Va. Fairfax County Educational Employees Supplementary Retirement System is conducting an invitation-only search for a global asset allocation manager to run up $300 million, said Alan Belstock, the boards executive director. New England Pension Consultants is assisting. Funding will come from existing equity and fixed-income managers; no terminations are planned. The board voted on May 15 to make the move to improve risk-adjusted returns, broaden portfolio diversification and to improve portfolio returns in potential periods of subdued market returns, Mr. Belstock said. A selection is expected by September.
PBGC details Chrysler pension funding
WASHINGTON Cerberus Capital Management, the private equity manager buying DaimlerChrysler AGs North American Chrysler operations, agreed to contribute $200 million more than the minimum legal funding requirement to Chryslers pension plans over the next five years, and Daimler has said it would contribute $1 billion if the plans terminate within five years, according to a statement May 17 from Vincent Snowbarger, interim director of the PBGC.
Both Daimler and Cerberus have made significant financial commitments to strengthen Chrysler pensions, Mr. Snowbarger said in the statement.
Chrysler had $24.6 billion in pension assets as of Dec. 31, and $22.6 billion in pension obligations.
Kansas PERS targeted by Sudan divestment law
TOPEKA, Kan. Kansas Public Employees Retirement System will be required to divest companies with business ties in Sudan as the result of a bill signed May 11 by Gov. Kathleen Sebelius, confirmed spokesman Seth Bundy. Glenn Deck, executive director of the $13.3 billion pension fund, will compile a report so the 2008 Legislature can address the financial impact of divestiture. Vince Smith, chief investment officer, said the fund has about $38 million in Sudan-related holdings. The bill takes effect July 1, Mr. Bundy said.
Illinois bill targets divestment
SPRINGFIELD, Ill. Illinois five state retirement systems would have to divest their holdings in Iran-connected companies in energy and other natural resource-related areas under an amendment to a bill in the House State Government Administration Committee adopted Wednesday. The committee also passed the bill out to the full House. State Rep. Lou Lang, assistant House majority leader, said the House could vote on the bill next week; he expects it to pass. The state Senate would then also have to vote on the bill, which also involves state procurement policy.
The bill affects the $39.7 billion Illinois Teachers Retirement System, Springfield; the $15.5 billion Illinois State Universities Retirement System, Champaign; and the funds overseen by the $12.3 billion Illinois State Board of Investment, Chicago: the Illinois State Employees Retirement System, the Judges Retirement System and the General Assembly Retirement System.
The bill appears to affect 20 to 25 international companies, most of which we wouldnt invest in anyway, said William R. Atwood, executive director of the Illinois State Board. The (Iran) bill wouldnt have a material effect on our portfolio.
UPS, Teamsters considering joint pension plan
United Parcel Service of America Inc., Atlanta, and the International Brotherhood of Teamsters, Washington, would create a joint UPS-Teamster pension plan to cover full-time UPS employees who currently obtain their pension benefits from the $20.7 billion Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Ill., according to a statement from the Teamsters.
The current proposal would create a plan jointly administered by UPS and the International Brotherhood of Teamsters with an equal number of Teamster-appointed and company trustees, the statement said.
The Teamster statement also said, "The company also proposed increases in pension and health and welfare contributions for other benefit funds covering UPS members."
Van Skillman, president and co-founder of the Association of Parcel Workers of America, a new union that is undertaking a campaign to replace the Teamsters as the UPS labor representative, said he understands the UPS proposal would cover all 21 of the multiemployer Teamster jointly trusteed plans covering UPS employees, including the $30.2 billion Western Conference of Teamsters Pension Trust Fund, Seattle, and the $3.4 billion New England Teamsters and Trucking Industry Pension Fund, Burlington, Mass.
UPS would pay $4 billion in withdrawal liability to the Teamsters fund, Mr. Skillman said.
UPS proposed in 1997 contract negotiations that workers could withdraw from Teamster plans and UPS would create a new pension plan for its Teamster employees, but the Teamsters opposed the idea and UPS didnt pursue it, Norman Black, UPS spokesman, told P&I last February.
Mr. Black said UPS officials wouldnt comment about the negotiations. Mark Angerame, CFO of the Central States fund, didnt return a call for comment. Galen Munroe, Teamsters press secretary, said the IBT would not comment beyond its statement.
Exxon Mobil director opposed
IRVING, Texas Exxon Mobil Corp. director Michael J. Boskin is being opposed for re-election. A group of institutional investors including California Treasurer Bill Lockyer, Connecticut Treasurer Denise L. Nappier, California Controller John Chiang and corporate governance expert Robert A.G. Monks is calling on shareholders to withhold votes on Mr. Boskin, chairman of Exxon Mobils public issues committee, over climate change issues, according to statements by members of the group.
The group is holding Mr. Boskin accountable for the boards refusal to meet with leading investors to discuss the companys potential exposure from climate change and the companys failure to take needed short-term actions to reduce its greenhouse gas emissions and expand its renewable energy investments, one of the statements said.
Also, the group is urging shareholders to vote in favor of proposals asking the company to set specific greenhouse gas reduction goals and significantly increase its spending on renewable energy the statement said.
Gantt Walton, Exxon Mobil spokesman, couldnt be reached. Exxon Mobils annual meeting is May 30.
Home Depot proposals fail
ATLANTA Shareholders of Home Depot Inc. on May 24 defeated all nine shareholder proposals, said spokesman Jerry Shields, who provided the proxy-voting results from the companys annual meeting. A say-on-pay proposal, sponsored by the $38 billion New York City Employees Retirement System, received 43% of the vote in favor; a proposal to separate the roles of chairman and CEO, sponsored by the $850 million American Federation of State, County and Municipal Employees Pension Plan, Washington, got 34% of the vote; a proposal for shareholder approval of extraordinary executive retirement benefits, sponsored by the $901 million Massachusetts Laborers Pension Fund, Burlington, got 44% of the vote; and a proposal asking for a standard on paying executives for superior performance, sponsored by the $558 million United Brotherhood of Carpenters and Joiners of America Pension Fund, Washington, received 37% of the vote. All directors were elected with at least 67% of the vote.
New Morningstar database eyed
CHICAGO Morningstar Inc. is looking into the viability of forming a public and corporate pension, endowment and foundation database, confirmed spokeswoman Alexa Auerbach. Morningstar is asking fund officials and investment consultants to fill out an online form indicating their willingness to provide monthly performance, expense and portfolio holdings data. The database is an outgrowth of a project Morningstar did with members of National Conference on Public Employee Retirement Systems.
Pension, endowment and foundation representatives can indicate their interest in participating by going to http://corporate.morningstar.com/MStarPEFDatabase by June 29.
Shareholders OK merger
Bank of New York and Mellon Financial shareholders on May 24 approved the merger between the two companies, announced in December. The merger is on track to close during the third quarter, according to a joint statement issued by both companies.
Record FTSE 350 contributions
FTSE 350 companies contributed a record £6 billion ($12 billion) to reduce deficits in their pension funds in 2006, an increase of 8% over the previous year, according to survey released by Mercer Human Resource Consulting. Contributions and investment gains helped improve overall funding positions of FTSE 350 companies, which are inching closer to surplus if measured according to the International Account Standard Boards IAS 19 framework.
For the schemes that are IAS 19 surplus, and theyre still in the minority, there is likely greater attention to move to lower-risk investments, Tim Keogh, worldwide partner at Mercer, said in a telephone interview. You could imagine lower equity weightings, more use of hedging instruments such as swaps.
Longevity has not been entirely reflected in the pension liability estimates. Mr. Keogh said. I would expect that this time next year, well probably issue another statement saying that (listed) companies have added another year to life expectancy.
Eaton Vance assets set record
Eaton Vance had record assets under management of $150 billion at the close of its second quarter April 30, up 11% from the prior quarter and up 26% from the year before, CFO William M. Steul said in an interview. The company reported $21.3 billion of net inflows into its long-term mutual funds and separate accounts over the past 12 months, and market appreciation of $9.8 billion, according to a news release.
Net income for the latest quarter came to $23.1 million, an eight-fold increase from the prior quarter but a 42% drop from the year-earlier quarter. The large swing was attributed to expenses associated with the recent IPO of a $5.8 billion closed-end fund and a one-time payment to terminate closed-end fund compensation agreements with Merrill Lynch and A.G. Edwards. Revenues for the latest quarter came to $260.2 million, up 7% from the prior quarter and up 23% from the year-earlier quarter.
Employee reps proposed for university board
OAKLAND, Calif. University of California Board of Regents would be urged to appoint employee representatives to the board of trustees, which oversees the University of California Retirement Plan, under the provisions of legislation introduced May 16 in the state Senate, said Adam Keigwin, spokesman for state Sen. Leland Yee, who introduced the bill.
The legislation was spurred by local media reports of alleged conflicts of interest between members of an advisory committee and money management firms doing business with the fund and because of weak investment performance, said Mr. Keigwin. The $47 billion retirement plan went from top-quartile performance in the 1990s to bottom quartile performance currently, according to a news release issued by Mr. Yee.
Since the senator has just introduced this proposal, we cannot comment on the specifics of the proposal until we've had the opportunity to thoroughly review it, but we certainly agree with him on the importance of keeping the UCRP strong, said Paul Schwartz, spokesman at the UCRP.
Average investment consulting fee up 5% in 2006
GREENWICH, Conn. Pension and endowment funds paid $227,000 in average annual fees for investment consulting services in 2006, 5% more than a year earlier and over 50% more than in 2002, according to a Greenwich Associates study. Public pension funds with assets between $1 billion and $5 billion paid the highest fees in 2006 with an average $381,000; public funds overall averaged $291,000. Corporate funds paid an average $206,000 and endowments paid $150,000. Greenwich said 83% of the funds surveyed used an investment consultant for investment advice last year, up from 80% in 2005 and less than 75% in 2003.
Large public funds were the most active in hiring new consultants almost 30% with more than $5 billion in assets reported doing so during the prior 12 months. Among public funds overall, 17% reported hiring new consultants during the prior 12 months, compared with 9% of corporate funds and 11% of endowments.
Missouri high court backs St. Louis funding
JEFFERSON CITY Mo. Missouris Supreme Court declined a rehearing on a decision that orders the city of St. Louis to fully fund the $740 million St. Louis Police Retirement System and the $430 million Firemens Retirement System of St. Louis, based on the amounts calculated by its actuary, confirmed Daniel Tobben, attorney for the firefighters system.
The suit, originally filed in 2003, claimed the city had breached its legal obligation to pay $18.5 million into the firemens pension fund for fiscal years 2004 and 2005. The Supreme Court ruled in favor of the retirement systems in mid-March and upheld that decision May 1 after the city filed a motion for a rehearing.
The city contended it did not have to pay the full amounts certified by the PRS and the FRS because they provide enough money to cover the benefits owed, according to the ruling. The court, however, said the city cannot evade its responsibilities to the PRS and FRS.
Mr. Tobben said that although the ruling covers only two fiscal years, the city might agree to pay the plans a total of $90 million which would also fulfill its responsibility for fiscal years 2006 and 2007 to avoid further litigation.
"My office is working with our financial advisers, the budget division and other officials in preparation to comply with the final outcome from the courts," city Comptroller Darlene Green said in an e-mailed statement. "It is my goal for the city to establish a plan that ensures benefit availability while creating a funding mechanism the city budget can support.
401(k) plan participants move to bonds
LINCOLNSHIRE, Ill. Nearly $110 million was shifted into fixed-income funds from equity in April, according to the Hewitt 401(k) index. The move was due to transfers out of employer stock, Hewitt found, with nearly $485 million transferred. For the first four months of the year, a total of $1.4 billion has flowed out of company stock funds. Large U.S. equity funds also experienced large outflows, losing $108 million in April. International funds had the largest inflows, with $347 million going into the asset class. Lifestyle funds also continued their trend of strong flows, gaining $120 million.
CalPERS OKs new manager development strategies
SACRAMENTO, Calif. The $245.3 billion California Public Employees Retirement System board on May 14 approved new investment strategies for its manager development II program, which takes an equity stake in smaller managers. New managers can now invest in emerging markets equity, international fixed income, 130/30 international bonds and 130/30 domestic equity. The decision supports a recommendation made by CalPERS staff.
Also on May 14, the CalPERS board voted to oppose state legislation that would require the fund to divest itself of investments in certain international companies with active operations in Iran, confirmed Pat Macht, a CalPERS spokeswoman. If enacted, the bill, now in the state Assembly, would prohibit CalPERS from investing in international companies with active business operations in Iran, which include those in defense, oil, nuclear or natural gas sectors in the Mideast nation.
International assets are a fifth of our portfolio, said Charles Valdes, investment chairman, in a news release. This bill would mean a potential divestment exceeding $8 billion $6 billion in equities and $2 billion in bonds. Our staff analysis shows that if we had not invested in some 50 affected companies over the past one, three and five years, the loss would have been about $725 million.
Funds net $3 billion in Tyco settlement
A group of union and public pension funds was part of a class-action lawsuit against Tyco International Ltd. that reached a $3 billion settlement with the company, said Allan Jordan, a spokesman for Schiffrin, Barroway, Topaz & Kessler, one of the law firms representing institutional investors. Jay Eisenhofer, partner at Grant & Eisenhofer, said in an interview that the settlement is the largest payment from a single corporate defendant ever.
The suit was filed in 2002 after former Tyco CEO Dennis Kozlowski and other company officers were accused of inflating the value of the companys stock and emptying its coffers. The settlement still has to be approved by the U.S. District Court in New Hampshire and Tyco shareholders, and its not clear when the plaintiffs will receive payouts from Tyco.
Grant & Eisenhofer represents the Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana, Mr. Eisenhofer said. Other members of the class represented by co-lead counsels Schiffrin, Barroway, Topaz & Kessler, and Milberg Weiss & Bershad were: Plumbers and Pipefitters National Pension Fund, United Association General Officers Pension Plan, United Association Office Employees Pension Plan, and United Association Local Union Officers and Employees.
The groups lawsuit against Tycos auditor, PricewaterhouseCoopers, has not been settled, said Richard Schiffrin, partner with Schiffrin, Barroway, Topaz & Kessler.
With this settlement we are taking an important step to resolve our most significant remaining legacy legal matter, Ed Breen, chairman and CEO of Tyco, said in a news release.
New York State Commons assets up 9.7%
ALBANY, N.Y. New York State Common Retirement Fund had $154.4 billion in assets as of March 31, up 9.7% from the $140.7 billion reported a year earlier, according to the New York State comptroller.
The fund returned 12.6% in fiscal 2007, outperforming its benchmark of 8%, according to a statement from the comptrollers office.
Last year the fund paid out more than $6.6 billion in benefits, and the assets still grew by nearly $14 billion, New York Comptroller Thomas DiNapoli said in the statement, adding the fund has outperformed virtually every benchmark.
PBGC has 20.7% stake in Delta
WASHINGTON The PBGC now has a 20.7% stake in Delta Air Lines Inc. Atlanta, following terms of a reorganization plan for holders of unsecured claims against the company, according to an SEC filing May 14. The PBGC received the stake for taking over the underfunded pilots plan as part of Deltas Chapter 11 bankruptcy reorganization. Under the reorganization plan holders of unsecured claims are allowed to receive shares of Delta stock, and the PBGC is expected to receive additional Delta shares in the future, according to the filing. The PBGC took over Deltas $1.6 billion pension plan for pilots in January; it was frozen in July 2005. The plan was underfunded by about $3 billion.
Kansas police adds to SSgA index fund investment
OVERLAND PARK, Kan. Overland Park Police Department Retirement Plan officials moved $1.5 million into a bond index fund run by State Street Global Advisors, according to Barry Bryant, consultant for Dahab Associates, which assisted. Mr. Bryant said the assets had been in the Vanguard Inflation-Protected Securities Fund, but the amount was too small to provide sufficient inflation protection. With the move, SSgA now runs about $15 million in the index fund. Mike Russo, manager of retirement plans, was not available to provide further details.
The move was made at the $43 million funds Feb. 21 meeting; minutes of the meeting were released May 10.
Multiemployer plans returns near benchmarks
NEW YORK Multiemployer pension plans equity investments returned a median 15.2% in 2006, just less than the 15.8% S&P 500 benchmark, according to a Segal Advisors report summarizing the 2006 investment performance results of pension funds in its multiemployer universe. The median equity return for 2005 was 7.4%. The median fixed-income return for 2006 was 4.6%, compared with 4.3% for the benchmark Lehman Aggregate bond index. The median fixed-income return was 2.7% in 2005.
Multiemployer pension funds investment performance in 2006 was consistent with the general experience of investors, the report said. Strong investment returns have a positive impact on plans funded status, although it may take time for the full effect to be seen.
At the same time, the report recommended that pension plan trustees continue to scrutinize their managers to be sure liabilities are adequately addressed, despite 2006 marking the fourth consecutive year of positive market performance.
Human rights screen sought on TIAA-CREF fund
NEW YORK TIAA-CREF is being urged by retirement plan participants of New York State United Teachers to modify the TIAA-CREF Social Choice Equity fund to screen companies for labor and human rights practices, Richard Iannuzzi, NYSUT president, said in an interview. The Representative Assembly of the New York State United Teachers, a federation of unions, has adopted a resolution calling on TIAA-CREF to add the new screening.
Only NYSUTs higher-education members about 100,000 of 600,000 members participate in TIAA-CREF funds, Mr. Iannuzzi said. The other 500,000 NYSUT members high school and elementary-level teachers belong to the $94 billion New York State Teachers Retirement System, Albany. Mr. Iannuzzi said the NYSUT hasnt considered a similar social responsible investment proposal for the state teachers system.
Mr. Iannuzzi said the NYSUT hasnt heard a response yet from TIAA-CREF in regard to the resolution.
Chad Peterson, TIAA-CREF director-media relations, said in a statement, Our program incorporates three core strategies: screening, shareholder advocacy and community investing. TIAA-CREF offers clients comprehensively screened funds: our CREF Social Choice Account and Social Choice Equity mutual fund use two layers of screening that take into account a wide range of factors including environmental impact, human rights, community impact and governance criteria.
Russell seeking transition data
TACOMA, Wash. Russell Investment Group is seeking input from transition managers, consultants and plan sponsors to help the firm update measurements, pricing and other aspects of its method for calculating investment performance during a portfolio transition, called the T Standard. Russell wants the T Standard to reflect a more modern investment environment, according to a news release.
With an array of new opportunity sets, portfolios today are increasingly complex, Steve Kirschner, senior investment strategist, transition management at Russell, said in the release. To ensure the T Standard remains relevant to investors and providers, further progress can be made.
Investment professionals can provide feedback at www.russell.com/tstandardfeedback.
Barclays introduces ETN
Barclays Bank introduced an exchange-traded note based on the Chicago Board Options Exchanges S&P 500 BuyWrite Index Exchange. The new ETN, part of the iPath family of Barclays unsecured obligations, is listed on the American Stock Exchange. The BuyWrite index tracks the total return of a hypothetical buy-write, or covered call, strategy on the S&P 500 index. Because it generates comparable returns to the S&P 500 but with lower risk, the buy-write strategy can help reduce volatility in an investors stock portfolio.
ESG database debuts
Institutional Shareholder Services unveiled a global sustainability risk report database and analysis that includes a scoring system ranking companies on more than 400 environmental, social and governance factors, according to a news release. The ISS-developed database and research is designed to help investors assess companies on their ESG performance. The sustainability risk reports coverage includes the companies in the S&P 500 and the S&P/TSX Composite index, as well as the European companies in the MSCI EAFE stock index, the statement said.
Shareholders not only expect their asset managers to know whether companies are acting as good corporate citizens, but also to consider ESG performance when managing their portfolios, John Deosaran, ISS vice president of ESG analytics, said in the statement.
Vanguard to introduce Euro Pacific ETF
MALVERN, Pa. The Vanguard Europe Pacific exchange-traded fund will begin trading on the American Stock Exchange in the third quarter, confirmed spokesman John Woerth. The fund will be offered as a share class of the Vanguard Tax-Managed International Fund, a $2.1 billion mutual fund.