Caterpillar Inc., Peoria, Ill., will switch more than half its 50,000 U.S. employees to 401(k) accounts from defined benefit plans to save the company money.
The move will affect 28,000 non-union workers, said Bridget Young, a company spokeswoman. In most cases, current pensions will be frozen until the employee retires or leaves the company, and those accounts can't be rolled into 401(k) plans, she said.
“We are making this transition in light of a continued trend among large companies to migrate from defined benefit plans to defined contribution plans as their predominant retirement income benefit and to strengthen Caterpillar's competitive position,” she said.
Caterpillar will provide an annual contribution to its workers' 401(k) plans and match employee contributions of up to 6% of pay.
ADP puts $150 million into defined benefit plans
Automatic Data Processing Inc., Roseland, N.J., contributed $150 million to its defined benefit plans in July for fiscal year 2011, according to the company's annual report.
The company plans to contribute roughly $7.6 million more to the plans in the fiscal year.
The plans had total assets of $961.3 million as of June 30, up 22% from a year earlier.
An ADP spokeswoman could not be reached for comment.
PBGC takes over pension plan of Maine paper company
The PBGC assumed responsibility for the pension plan of Fraser Papers Ltd., Madawaska, Maine, confirmed Gary Pastorius, agency spokesman.
The Pension Benefit Guaranty Corp. stepped in after the company's parent, Fraser Papers Inc., Toronto, sold substantially all operating assets to a group of creditors; the transaction did not include the pension plan.
The U.S. unit and the parent are in bankruptcy protection both in the U.S. and Canada.
The salaried employees' portion of the plan was frozen as of Oct. 31, 2009, and for bargaining unit employees, as of April 28, 2010.
The pension plan for the eligible employees of Fraser Papers Ltd. is 44% funded, with about $83 million in assets and $187 million in liabilities, according to PBGC estimates. The agency expects to cover about $99 million of the $104 million shortfall. The plan was terminated as of April 28.
Assumption of the plan's unfunded liabilities will increase the PBGC's claims by $98.6 million and was not previously included in the agency's fiscal year 2009 financial statements.
L.A. Fire & Police chips in to recapitalize Stockbridge fund
Los Angeles Fire & Police Pension System agreed to invest up to $3.75 million to recapitalize the $1 billion Stockbridge Real Estate Partners II, stated Michael Perez, general manager of the $12.3 billion system in an e-mailed response to inquiries.
The investment fund, closed in 2006, has $1.02 billion in outstanding debt on its properties: $221 million is recourse debt.
Mr. Perez, in an Aug. 19 memo to the board, cited the investment fund's vintage, heavy exposure to development projects and its “recourse debt/fund guarantee,” which allows a lender to go beyond the individual property and go after the Stockbridge fund's other assets for any unpaid balance, as among the reasons contributing to its problems.
The board of the Los Angeles Fire & Police fund agreed to join other limited partners to recapitalize the fund, giving them rights to be paid back their $30 million commitment before those who don't participate in the recapitalization. LAFPP officials also negotiated a 33% fee reduction.
Based on projections by its real estate consultant, Townsend Group, the LAFPP might recover $10.5 million of its investment if it participates, compared with $3 million if it does not.
Separately, the board renewed the contract, for three years, of Delta Asset Management, which manages a $355 million active domestic large-cap growth equity portfolio. The contract was to expire in September.
N.M. Education drops WAMCO on core bonds
New Mexico Educational Retirement Board, Santa Fe, decided not to extend WAMCO's contract to manage $564 million in core fixed income, which is set to expire in February, said Bob Jacksha, chief investment officer of the $8.2 billion fund.
The board is researching whether to replace the core fixed-income strategy with other credit strategies. Searches may result, either by RFP or invitation to bid, but there is no timetable, Mr. Jacksha said.
Separately, the board terminated active large-cap equity managers Goldman Sachs, which ran $366 million in growth, and Brandywine, $346 million in value, and moved the assets to a passive in-house portfolio.
The board also decided to extend for one year the contract with Wachovia Global Securities Lending to oversee $6.4 billion in lendable securities. Wachovia's contract was set to expire Sept. 30, he said.
LACERS sticks with Aronson + Johnson
Los Angeles City Employees' Retirement System renewed an equity portfolio with Aronson + Johnson + Ortiz for three years, stated Juan Garcia, spokesman for the $9 billion system in e-mails in response to inquiries.
The firm manages a $363.8 million active large-cap value domestic equity portfolio; its contract was set to expire Oct. 31.
Separately, the system earned an annualized gross return of 12.9% and annualized net return of 12.7% for the year ended June 30, compared to an annualized gross return of -19.5% and an annualized net return of -19.6% for the previous year.
No RFP was issued.
Xerox settles shareholder lawsuit over ACS takeover
Xerox on Aug. 24 won final approval for the $69 million settlement of a shareholder lawsuit challenging its $6 billion takeover of Affiliated Computer Services.
ACS investors, including the New Orleans City Employees' Retirement System, sued in Delaware Chancery Court and in state court in Texas alleging ACS directors wrongfully agreed to allow ex-Chairman Darwin Deason to collect more than $1 billion in the buyout. The settlement resolves both the Delaware and Texas claims. The New Orleans system had $256 million in assets as of March 31, 2009, the most recent data available, according to Money Market Directories.
“$69 million is a high monetary benefit” for ACS investors, Delaware Chancery Court Judge Donald Parsons Jr. said in giving final approval to the accord. He also approved $17.2 million in legal fees for investors' lawyers.
Lisa Weaver, a spokeswoman for Norwalk, Conn.-based Xerox, didn't immediately return a call for comment on the settlement's approval.
Under the agreement, according to court papers, ACS will pay $56.1 million and Deason will pay $12.8 million, some subject to insurance payments. Former ACS stockholders who file claims will share what's left of the settlement fund after legal fees and administrative expenses, according to court papers.
Lawyers settled the case just before a trial had been set to start May 10 in Wilmington before Mr. Parsons.
“We were able to get a hefty chunk of change” for disgruntled ACS shareholders, Stuart Grant, an attorney representing ACS investors, told Mr. Parsons on Aug. 24.
Phoenix picks international large-cap finalists
Phoenix City Employees' Retirement System named Baillie Gifford, Hansberger Global Investors and William Blair as finalists in its shortlist search for an active international large-cap growth equities manager, confirmed Greg Fitchet, investment manager of the $1.6 billion fund.
Mr. Fitchet said in a telephone interview that at an Aug. 18 special meeting, the board also decided to terminate Pyramis Global Advisors, which runs $137.5 million in an active international large-cap equities commingled fund benchmarked to the MSCI EAFE, once the new manager is hired. Performance was not an issue, Mr. Fitchet said; the fund changed its benchmark to the MSCI ACWI ex-U.S.
Mr. Fitchet said the system chose the finalists for the $117.5 million international growth mandate from a list of seven candidates presented by consultant R.V. Kuhns. The board will interview the three at its Sept. 22 meeting.
Mr. Fitchet said the remaining $20 million of the Pyramis portfolio will be placed in an SSgA ACWI ex-U.S. non-lending index fund.
“We're trying to get more growth out of that portion of our portfolio,” Mr. Fitchet said. “About 23% of the ACWI ex-U.S. is in emerging markets.”
He said the system also has completed a shortlist search for an international small-cap equities manager to run $40 million, narrowing the list to seven semifinalists. Three finalists will be chosen to make presentations to the board in November, he said. The system aims to choose a manager in December. Funding will come from a $70 million international small-cap equity portfolio formerly run by AXA Rosenberg that has been in a BlackRock MSCI EAFE small-cap index fund since May. The remaining $30 million of the AXA account will be put into the SSgA ACWI ex-U.S. index fund, Mr. Fitchet said.
Following the hiring of the small-cap equity manager, the system will have just less than $334 million in its international equity portfolio, he said.
Miami lax on dealing with underperforming managers -- report
Miami, which spends about one-fifth of its operating budget on pension funds, isn't doing enough when investment managers miss their targets, according to a report from the city auditor.
BlackRock and Atlantic Capital Management went on a watchlist in June 2009 and March 2005, respectively, Victor Igwe, the city auditor, said Aug. 25. Both stayed on the list for more than a year but weren't dismissed when city rules permitted it, he said. Atlantic was dropped in April 2008; BlackRock remains under contract, Mr. Igwe said.
“It is unclear why the board would establish a minimum-performance requirement that is not promptly enforced, particularly when such lack of performance results in over $4 million of loss to the city,” Mr. Igwe said in the report.
Atlantic lost about $4.35 million in the two years it stayed under contract after it could have been dismissed, Mr. Igwe said. BlackRock lost about $3.81 million in the three quarters after it went on the watchlist, he said.
BlackRock can't be removed until it lifts a freeze on liquidating real estate assets, Sandra Elenberg, pension administrator for the General Employees and Sanitation Employees Retirement Trust, said in a response included with the report. She said the guidelines didn't mandate dismissal of a manager that failed to perform well enough to get off probation after a year on the list.
Atlantic's losses in the two years after it could have been dismissed weren't much larger than other managers of small-capitalization stocks who met their targets, she said.
Declines in the trust's investments left it with unfunded liabilities of $113.7 million in fiscal 2008 and $106.6 million in 2009, Mr. Igwe said.
BlackRock's imposition of the freeze was an “indication of inadequate oversight,” Mr. Igwe said. Ms. Elenberg said such actions are “standard practice” among managers of similar assets. She said the fund meets with BlackRock every three months.
BlackRock doesn't comment on client activity, said Lauren Trengrove, a spokeswoman. Atlantic representatives couldn't be reached immediately for comment.
Oklahoma Teachers seeks opinion on diverted contribution
Oklahoma Teachers' Retirement System, Oklahoma City, is seeking an opinion from Oklahoma Attorney General W.A. Drew Edmondson on the State Board of Education's decision to direct a required $35 million employer contribution away from the system to be used for educational programs, according to James Wilbanks, executive secretary.
Mr. Wilbanks said the Oklahoma Legislature's state budget this year did not require the board of education to direct the funds to the $8.7 billion pension plan, as it has in years past.
He said an opinion from Mr. Edmondson is legally binding and could require the board to make the contribution. Mr. Wilbanks said the letter has not yet been drafted.