The Treasury Department on Friday rejected a proposal by a pension fund to cut the payout for hundreds of thousands of truck drivers, construction workers and other service personnel, though the retirement plan’s financial headaches are far from over.
It is extremely rare for retirees to ever see reductions in their pension benefit. In most cases, such action is illegal. But a 2014 federal law made it possible for cuts to certain cash-strapped multiemployer plans. The Teamsters’ Central States’ proposed cuts would have slashed some members’ income by 50% or more.
On a media call, Kenneth Feinberg, the star mediator who reviewed the proposal, said he rejected Central States because the overhaul was based on rosy investment return assumptions, uneven cuts among retirees and flawed plan notice to recipients
“We at Treasury do not believe that the plan as submitted will reasonably avoid insolvency,” Mr. Feinberg said.
Central States represents about 400,000 truckers, construction and other types of service workers. Decades ago, Central States had four active workers contributing into the retirement plan for every one retiree or inactive member. But now that ratio has nearly reversed, meaning far fewer active workers are paying into the pension versus receiving benefits.
Treasury is set to decide on the matter by May 7th, and as it turns out, the decision impacts more than just current plan participants…
During its Q1 earnings call, UPS told investors that if Treasury approves the CSPF plan to cut benefits, the company would have to take a charge of approximately $3.2 to $3.8 billion.
As part of a collective bargaining agreement with the International Brotherhood of Teamsters when UPS withdrew from the fund in 2007, the company agreed to provide supplemental benefits to any remaining members in the event that certain benefits were lawfully reduced.
While any income statement impact will be adjusted out by analysts, it will be a significant drain on UPS’ cash flow (UPS generated $5 billion in free cash flow in fiscal 2015) as it funds the benefit gap over time.
A dark storm is brewing in the world of private pensions, and all hell could break loose when it finally hits.
As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it “projects” it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark.
Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income.
Law360, New York (January 11, 2016, 7:25 PM ET) — The U.S. Supreme Court on Monday turned away a pension fund’s case that had sought to revive a putative class action accusing Bank of America Corp. of raising billions of dollars in stock offerings in 2008 without disclosing their secondary mortgage market exposure.
NECA-IBEW Pension Trust Fund and other investors had argued in their November petition to the high court that the Second Circuit had failed to consider the Supreme Court’s March ruling in Omnicare Inc. v. Laborers District Council Construction Industry Pension, which found that..
Diane Bucci and her fellow retired Rhode Island schoolteachers were angry about a deal last year to cut their promised retirement benefits. For 28 years, the elementary school teacher devoted between 7 and 9 percent of her paycheck to the state’s pension system. In return, the 72-year-old had been promised a consistent cost-of-living increase to make sure her retirement stipend kept pace with inflation. Now, though, state officials were trimming her check in the name of replenishing the depleted pension fund.
There was, however, a sliver of hope — or so it seemed: If the pension system could generate better investment returns and amass 80 percent of the money needed to pay current and future retirees, the annual cost-of-living increases would return.
“There was a lot of unrest and anger among teachers, but at that point we buckled down and focused on how we could get to solvency,” said Bucci, who is on the board of the 700-member Rhode Island Retired Teachers Association. “So even though we aren’t Wall Street experts, we just started to ask questions about how the pension fund was managed, and what it was invested in. That’s when we realized the fees we’ve been paying to the investment companies were the problem.”
Those levies — which hit $79 million last year — were the product of the state’s recent investment strategy. Following a controversial national trend, Rhode Island pension officials led by then-General Treasurer Gina Raimondo shifted roughly a quarter of the state’s pension portfolio into high-fee hedge funds, private equity firms and other so-called “alternative investments.”
NEARLY 2,500 former Lehman Brothers bankers based in the UK will have their future pensions paid after winning a six year legal battle with representatives of the collapsed investment bank.
Five companies within the failed bank have agreed to pay £184m to the UK pension fund in a settlement brokered by The Pensions Regulator and the scheme’s trustees.
The deal “will allow the Lehman Brothers pension scheme to pay in full retirement benefits to members and avoid the scheme’s entry into the Pension Protection Fund (PPF),” the regulator said in a statement.
When Lehman Brothers imploded in 2008, the UK pension scheme was left with a deficit of £120m. The former bankers faced the loss of millions of pounds in pensions savings and the prospect of having to turn to the PPF, the industry safety-net. The PPF pays out on the first 90pc of pension promises but only up to a limit of £32,761 a year – far below the value of many of savings of the higher paid bankers.
Affordable housing advocates have been pushing hard for principal mods on mortgages backed by Fannie Mae andFreddie Mac.
Ed DeMarco, the former acting head of the Federal Housing Finance Agency had refused to embrace principal mods, choosing instead to do rate / term modifications through the Home Affordable Modification Program.
As the Acting FHFA Chairman, DeMarco’s prime directive was to protect the taxpayer, and the fear was that a mass principal refi program would trigger a wave of strategic defaults, where people who had the ability to repay their mortgage would choose to stop paying in hopes of getting a principal mod.
The left thought they had finally scored a victory by replacing Ed DeMarco with Mel Watt, a politician seen as more amenable to principal mods. So far, the left has been disappointed.
Why is the government resisting principal mods?
Because there is one big investor in MBS that the government is worried about – pension funds.
Principal mods for Fannie and Freddie mortgage-backed securities could be a game changer for this paper.
Why? Because lots of MBS from the late bubble years are backed by underwater, above market-rate mortgages. The prepayment speeds for these mortgages is depressed because the borrower cannot refinance.
The Financial Services Authority (FSA) is looking into allegations that a US financial services firm overcharged Ireland’s state pension fund during a transaction last year.
It will also investigate whether other UK corporate pension funds, such as Royal Mail and J Sainsbury may have been overcharged, according to the Financial Times.
Ireland’s national debt agency accused State Street Corp of fraud for overcharging the country’s pension fund.
State Street admitted overcharging by £2.6 million when it was hired to manage the sale of 4.7 billion euros of assets to fund the recapitalisation of Ireland’s banks.
Read more: http://www.thisismoney.co.uk/money/markets/article-2237319/Watchdog-probes-US-bank-claim-swiped-2-6m-Irelands-state-pension-fund.html#ixzz2D4qU9e4h
JP Morgan report on pension bomb—Charles Gasparino – NYPOST.com.
While the Senate Banking Committee last week spun its wheels trying to get JP Morgan chief Jamie Dimon to admit to something nefarious during testimony about his “London Whale” trading loss, executives at the big bank were concealing a far bigger scandal.
OK, it’s no secret that nation’s public pension funds are in big trouble, holding large “unfunded” liabilities owed to public workers once they retire. But most politicians (New Jersey Gov. Chris Christie is an exception) will tell you the problem is fairly containable, that there are simple fixes — such as raising taxes on the rich or pruning benefits.
Not so, warns a “strictly confidential” report JP Morgan issued last year. It describes in straightforward, frightening detail how underfunded pensions are huge ticking timebombs for many of the nation’s big cities and states.
The scandal isn’t simply that most public officials are misleading the public about the enormity of the problem and what steps must be taken to address the matter. As the Morgan report notes, many of the real liabilities are located “off balance sheet,” hidden from the public’s eye, and lax accounting standards let cities and states minimize their enormity.
It’s also that JP Morgan itself kept the report’s findings a secret except for a few big clients, mostly hedge funds and large institutional investors, who got the inside tip on which states and cities are most likely to default on their debt as their pension liabilities fester.
Yes: Default is a very real possibility, because the solutions are far from easy.
Read more: NY Post
JPMorgan Chase & Co. (JPM) was sued by a Louisiana police pension fund for alleged securities fraud tied to a trading loss of at least $2 billion.
The Louisiana Municipal Police Employees Retirement System claimed the biggest U.S. bank and top officials including Chief Executive Officer Jamie Dimon misled investors about its risk management and financial condition from February 2010 to May 2012.
“Defendants made false and misleading statements and concealed material information relating to the company’s trading practices, hedging of risk, risk management, and exposure to risk of loss,” according to the complaint filed today in U.S. District Court in Manhattan.
The police pension plan is seeking class-action, or group, status on behalf of all who bought JPMorgan Chase common stock from February 2010 to May 2012, a number which may be in the tens of thousands, according to the complaint. It is also seeking unspecified compensatory and punitive damages.
Joseph Evangelisti, a spokesman for the New York-based bank, declined to comment on the allegations.