STUMP » Articles » Around the Pension-o-Sphere: Illinois, California, Shareholder Activism, and Puerto Rico » 24 March 2018, 19:52

Where Stu & MP spout off about everything.

Around the Pension-o-Sphere: Illinois, California, Shareholder Activism, and Puerto Rico  


24 March 2018, 19:52

Let’s get started!

(and yeah, I know this is late on Saturday, but what is Saturday but second Friday?)

Okay, maybe not, but my Tardis is in the shop.


More seriously, I’m trying a new system in collecting & organizing my pension stories, and I’m still working out the kinks.


No, not those kinks….. ok, just never mind. Let’s get this show on the road.


There were primary elections in Illinois last Tuesday — for the governor’s race, Rauner is still in on the Republican side, while billionaire Pritzker is on the Democratic side.

Get ready for an expensive race:

When the dust settled after Tuesday’s primary, the race for governor of Illinois was set — Republican Gov. Bruce Rauner will face Democratic businessman J.B. Pritzker, an investor and heir to the Hyatt hotel fortune.

It’s also expected to be the most expensive race in U.S. history.

Seems fitting for the most spendthrift state.

I found the following the most appropriate casting of the primary: Illinois Candidates Vie to Lead State With Nation’s Worst Credit Rating – Bloomberg

Up for grabs in Illinois’s gubernatorial primary on Tuesday: A chance to compete in a general election that will decide who will lead the worst-rated state — one whose massive financial problems aren’t going away anytime soon.

Illinois is contending with $9 billion of unpaid bills, chronic budget deficits and $129 billion of unfunded pension liabilities. Its credit rating is only one level above junk, making its borrowing costs the highest of any U.S. state as bond buyers punish Illinois for its fiscal woes. Plus the Land of Lincoln is losing population, dropping to the sixth-most-populous state last year from number 5, U.S. Census data show.

“This is a pivotal election for Illinois, which has been struggling for almost a decade to stabilize its finances,” said Laurence Msall, president of the non-partisan Civic Federation, which tracks the state’s finances. “With only one notch separating Illinois from non-investment grade credit, the stakes are enormously high for whoever wins the primary and election to identify the financial path forward for the state.”

Other story round-up:

For a while, I was scared I would lose my implicit bet against John Bury with respect to whether Illinois (me) or New Jersey (Bury) would go under first [this is implicit, because I’m the only one making a bet… in my mind.]


Um…maybe not like that.


Oh, California. What are we going to do with you?

I like that CALmatters did an explainer recently: Your pension questions answered | CALmatters

Where on earth can a private sector employee retire at 50 with a guaranteed six-figure income for the rest of their lives?

This question strikes at the heart of what’s been described as pension envy.

Under pension enhancements approved back in 1999, California Highway Patrol officers were granted retirement as early as 50 with 90 percent of their peak pay. The formula, known as “3 percent at 50,” which meant collecting 3 percent of the highest salary for each year worked, was expanded to prison guards, police and firefighters across the state. Within the California Public Employees’ Retirement System, 3.5 percent of pension recipients receive $100,000 or more.

Labor representatives say pensions preserve retirement security for middle-class workers. But as fewer private-sector workers have access to pensions, more Americans have fallen into retirement insecurity.

It’s difficult to say how many private companies provide six-figure pensions—and to how many of their workers. But by and large, older Americans are falling short of their retirement income goals.

Alicia Munnell, former economic advisor to President Bill Clinton and now director of the Center for Retirement Research at Boston College, says about half of today’s working-age households are at risk of maintaining their pre-retirement standard of living.

As we noted, there’s been a growing divide between public and private sector workers. A scarce number of private employers now offer traditional pensions that pay a “defined benefit” for life as most shift to defined contribution plans such as 401(k)s.

Just 5 percent of Fortune 500 companies offered a traditional defined benefit plan to new employees in 2015, down from roughly half in 1998, according to professional services company Willis Towers Watson.

Go to the link for more Q&A as well as the in situ links.

I want to point out something from that last item:

A distinctive feature of the San Francisco system — requiring voter approval of pension increases — was adopted by more conservative voters for the San Diego pension system in 2006 and the Orange County pension system in 2008.
Moody’s mentions two factors: a retiree health reform that takes longer to earn benefits and aims for full pre-funding, and pensions with higher employee payments and lower police and firefighter formulas than one widely adopted after a CalPERS-sponsored bill, SB 400 in 1999.

The upgrade makes no comparisons. But the San Francisco pension system takes a smaller bite out of the general fund than some other big-city retirement systems, leaving more money for basic services and programs.

“Over the last decade, the City’s General Fund expenditures related to employer (pension) contribution has gone from 2.5% of General Fund spending to over 7% of General Fund spending,” an update of the San Francisco five-year financial plan said in December.

There’s nothing there that means public pensions need to be all-devouring like in Illinois or New Jersey. There are many pieces to it, and it would not require a shift over to full 401(k) models.

But more on that another time… maybe it will need to wait til April, because I’m waiting on something to resolve.


I linked some of these earlier this week, but I thought it required a little more commentary/linkage.

First off, the California pensions objected to Elon Musk’s compensation package.

CalSTRS Not on Board with Tesla’s Proposed Compensation Package

Although it remains to be seen what Tesla shareowners think of CEO Elon Musk’s compensation package, the $224 billion California State Teachers’ Retirement System (CalSTRS) is not a fan of the move.

“CalSTRS is appreciative of Elon Musk’s visionary leadership of Tesla and hopes he continues to advance the company’s mission to accelerate the world’s transition to sustainable energy. While we appreciate that the board of Tesla is trying to incentivize and further align Mr. Musk with that of shareholders, we cannot support the 2018 performance award,” ,” CalSTRS’s Director of Corporate Governance Anne Sheehan told CIO in an emailed statement. “Given the size of the award, we believe the potential dilution to shareholders is just too great. In addition, we have concerns about the lack of focus on profitability for the company, and the one profitability metric that is used excludes the cost of stock-based compensation.” 

As I said in a recent post, I thought this sort of behavior appropriate for pension plans. Calstrs wasn’t successful in its ‘no’ vote, but that’s to be expected when the pension had only 0.13% of shares.

This one – is very iffy to me — NYS Common Cracks Down on Corporate Board Diversity | Chief Investment Officer

Diversity agreements made with four Fortune 500 companies.

The $209 billion New York State Common Retirement Fund is cracking down on board diversity in the companies in which it invests.

Comptroller Thomas DiNapoli, who oversees the fund, announced Wednesday that the fund will vote against all board directors eligible for re-election at companies without any women on their boards.

For companies with just one woman on their boards, the fund will vote against governance committee board members seeking re-election.

“We’re putting all-male boardrooms on notice—diversify your boards to improve your performance,” Comptroller DiNapoli said in a statement. “There is ample research that board diversity benefits companies. We will continue to urge our portfolio companies to adopt inclusive policies to diversify their boards, but we’re also going to be speaking loudly with our board votes.”

The fund, which invests in more than 400 public companies with no women on their boards and more than 700 companies with only one woman on their boards, also announced agreements with Fortune 500 companies Bristol-Meyers Squibb, Leucadia National, Packaging Corp. of America, and PulteGroup to include greater gender and racial diversity on their boards.

New York State Common had previously filed shareholder proposals at the companies for their lack of diversity. As a result of the four companies agreeing to seek out more women and minority candidates on their boards, the fund has withdrawn its proposals.

“It is unconscionable that hundreds of publicly held US companies have no women directors,” DiNapoli said. “We commend those companies that have agreed to improve their policies in an effort to diversify their boards.”

For what it’s worth, I’ve seen these studies re: better results with more women on the corporate boards, but I’m somewhat skeptical.

I will agree with the correlation, but not causation.

As the alt-text on the original comic says:

Correlation doesn’t imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing ‘look over there’.

And the “look over there” may be indicating issues with respect to:
- too long tenures of some directors
- better-run companies may be the ones seeking women for their boards, rather than women being the causal factor
- an issue with the sample sizes

Here’s something:

That is from 2012, so it’s a bit old. But I want to point out Norway vs. the UK. Look how many women are on Norwegian company boards! And how few UK company boards have 3 or more women on the board?

I have some questions:

  • How many companies are in each sample? I have a feeling there are far more UK companies than Norwegian companies (and I have lots of reasons of thinking that… quick: are there more U.S. or Canadian companies?)
  • What’s the distribution of board size by country?
  • How many of the women on the boards are insiders v. outsiders?
  • How many of the women are on multiple boards?

All that said, New York’s decision is primarily symbolic…as long as they’re just voting in a particular way, as we saw with the Calstrs vote, individually these institutional investors are spit in the wind. If they can convince a larger consortium of investors to go this way, they may make a change that has very little to do with actual profitability and growth of these companies.

Finally, here’s a story that made my eyebrows go way way up.

CalPERS Report Details Role in Dakota Pipeline Controversy

A rare insider report from the California Public Employees’ Retirement System details how the pension plan played a behind-the-scenes role in the controversy over the Dakota Access Pipeline project, which ultimately helped lead to several financial institutions giving up their role in funding the project.

The report, released March 19, shows how CalPERS engaged the 17 banks financing the project by helping develop an investors’ statement calling for a rerouting of the pipeline, meeting with the pipeline developer, and convening with several other investors a multi-stakeholder briefing with the leadership of the Standing Rock Sioux Tribe.

The now-operating 1,172-mile pipeline follows a route near the Standing Rock Sioux tribe’s reservation in North Dakota. While the tribe supported the project generally, it protested the selected route’s proximity to the tribes’ water supplies, sacred sites, and treaty territory.

After CalPERS intervened with other investors, three banks—BNP Paribas, Norwegian bank DNB, and Dutch Bank ING—sold their loans in the pipeline project, the CalPERS report said. Another bank, Wells Fargo, reviewed its indigenous peoples’ rights statement to ensure that its due diligence process includes a focus on indigenous communities, including whether they were properly consulted, the report said.

Some of its efforts were unsuccessful. “CalPERS’ engagements did not have an impact on the route chosen for the pipeline,” the report says. “We were constrained by the lack of voting rights due to ETP (pipeline developer Energy Transfer Partners) being a master limited partnership. Therefore, CalPERS had to follow an indirect route, by engaging as shareowners of the banks financing the pipeline.”

That goes waaaay above and beyond what shareholders should be doing… even when it’s their own money they’re playing with.

When it’s other people’s money?


I am trying to see how this in any way enhances the investment of the pension funds. Sure, you love indigenous people’s rights. So do that with your own money — if you can’t act as somebody else’s agent, considering that your duty is to safeguard value and returns, then PERHAPS YOU SHOULD GET A DIFFERENT JOB.


One last item before I go:

Puerto Rico rejects pension cuts sought by federal board – ABC News

Puerto Rico government officials said Friday they will not bow to demands from a federal control board overseeing the island’s finances that they implement cuts to a struggling public pension system as part of an upcoming fiscal plan to help pull the U.S. territory out of an economic crisis.

Gov. Ricardo Rossello told reporters the biggest disagreement between his administration and the board is over a proposed average 10 percent cut to pensions of more than $1,000 a month paid by a system facing nearly $50 billion in liabilities.

Christian Sobrino, the governor’s representative to the board, defended the government’s revised fiscal plan and said it would generate a $5.5 billion surplus in upcoming years and help reverse the economic slump while avoiding the elimination of vacation or sick days and reductions in maternity leave, among other things he said the board has proposed.

So. The Puerto Rican pension is essentially pay-as-you-go… and where is the “pay” part?

Because I think the “go” part is pretty down.


So, I’m just asking: where do you expect to get all the money to fill this gaping hole? Because there are plenty of gaping holes, and you’re nothing special when stacked up against California, Illinois, Kentucky, New Jersey, et. al.


I’m done.

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