This document provides an overview of OPEB (Other Post-Employment Benefits) investments and implications for school boards. It notes that playing it safe with OPEB investments carries risks, as bond proceeds may deplete or earnings may be lower than costs. The document recommends amending investment policies to allow longer-term, diversified portfolios that can achieve higher returns than restrictive local policies. It advises boards to estimate trust life, review policies, and work with experts to prudently manage OPEB liabilities and obligations.
2013 Callan Cost of Doing Business Survey: U.S. Funds and TrustsCallan
Monitoring and controlling costs is a primary fiduciary responsibility for all funds and trusts. In this survey, Callan compares the costs of administering and operating funds and trusts across all types of tax-exempt and tax-qualified organizations in the U.S.
We identify practices and trends to help institutional investors manage expenses.
We fielded this survey in April and May of 2013. The results incorporate responses from 49 fund sponsors representing $219 billion in assets. In this report, we include comparisons with four similar surveys Callan conducted over the past 15 years to identify enduring, long-term trends in fund/trust management and expenses.
Major long-term trends identified include rising external investment management fees and non-investment management external advisor fees, alongside falling custody costs. Allocations have steadily shifted out of U.S. equity and into non-U.S. and global equities, real estate, hedge funds, and private equity since 1998. Other key findings include:
• In 2012, funds spent an average of 54 basis points of total assets to operate their funds. Average total fund expenses have climbed more than 50% since 1998, when Callan first collected this data.
• External investment management fees represent the lion’s share of total fund expenses at 90%. This figure has grown steadily over time, from 83% in 1998. The increase can largely be attributed to growing allocations to more expensive alternative
asset classes, namely hedge funds and private equity.
• More assets flowed to hedge funds and private equity, as the percentage of funds invested in and the average allocations to these asset classes grew. Hedge fund and private equity fees saw modest declines at the median over the last four years, while averages were fairly static. Real estate fees saw little change and the average allocation remained around 6%.
• Not surprisingly, smaller funds—defined as those with less than $1 billion in total assets—pay a premium (65 basis points, on average) to administer their funds relative to mid-sized and larger funds. Conversely, there is little difference between total expenses for the medium (47 basis points) and large funds (48.5 basis points) that responded to our survey. This can
be attributed to differences in asset allocation, as large funds tend to invest in more expensive strategies.
• External investment management fees are the primary driver of total fund expenses. These fees have risen 55% over 15 years. Non-investment management external advisor fees,1 which are the second largest average expense for U.S.
funds, have increased 115% since 1998. However, at 5% of total fund expenses, changes in this area have a more modest impact than external investment management fees.
2013 Callan Cost of Doing Business Survey: U.S. Funds and TrustsCallan
Monitoring and controlling costs is a primary fiduciary responsibility for all funds and trusts. In this survey, Callan compares the costs of administering and operating funds and trusts across all types of tax-exempt and tax-qualified organizations in the U.S.
We identify practices and trends to help institutional investors manage expenses.
We fielded this survey in April and May of 2013. The results incorporate responses from 49 fund sponsors representing $219 billion in assets. In this report, we include comparisons with four similar surveys Callan conducted over the past 15 years to identify enduring, long-term trends in fund/trust management and expenses.
Major long-term trends identified include rising external investment management fees and non-investment management external advisor fees, alongside falling custody costs. Allocations have steadily shifted out of U.S. equity and into non-U.S. and global equities, real estate, hedge funds, and private equity since 1998. Other key findings include:
• In 2012, funds spent an average of 54 basis points of total assets to operate their funds. Average total fund expenses have climbed more than 50% since 1998, when Callan first collected this data.
• External investment management fees represent the lion’s share of total fund expenses at 90%. This figure has grown steadily over time, from 83% in 1998. The increase can largely be attributed to growing allocations to more expensive alternative
asset classes, namely hedge funds and private equity.
• More assets flowed to hedge funds and private equity, as the percentage of funds invested in and the average allocations to these asset classes grew. Hedge fund and private equity fees saw modest declines at the median over the last four years, while averages were fairly static. Real estate fees saw little change and the average allocation remained around 6%.
• Not surprisingly, smaller funds—defined as those with less than $1 billion in total assets—pay a premium (65 basis points, on average) to administer their funds relative to mid-sized and larger funds. Conversely, there is little difference between total expenses for the medium (47 basis points) and large funds (48.5 basis points) that responded to our survey. This can
be attributed to differences in asset allocation, as large funds tend to invest in more expensive strategies.
• External investment management fees are the primary driver of total fund expenses. These fees have risen 55% over 15 years. Non-investment management external advisor fees,1 which are the second largest average expense for U.S.
funds, have increased 115% since 1998. However, at 5% of total fund expenses, changes in this area have a more modest impact than external investment management fees.
High Net Worth Webinar Series - Tax Planning and Update for 2022Citrin Cooperman
As 2021 comes to an end, business owners and individuals are seeking opportunities to maximize their savings through year-end tax planning. This webinar session will help you navigate the many complexities, obstacles, and impending tax landscape changes that the 2021 tax year brings to the table and what 2022 has in store.
Risk Management at Wellfleet Bank: All That Glitters Is Not GoldHira Naz
Case Study Solution: Gatwick Gold Corporation
Case Study Solution: Gatwick Gold Corporation
Risk Management at Wellfleet Bank: All That Glitters Is Not Gold
Advanced Financial Risk Management
Institute of Business Management
Callan’s 2014 Investment Management Fee Survey provides a current report on institutional investment management fee payment practices and trends. To collect this information, Callan sent an electronic questionnaire to a broad sample of U.S.-based institutional fund sponsors and investment management organizations. Respondents provided fee information for calendar year 2013 (specific dates varied by organization, but the majority were as of December 31, 2013), and perspective on fee practices and perspectives for 2014. We supplemented this data with information from Callan’s proprietary databases to establish the trends observed in this report.
Callan conducted similar surveys in 2004, 2006, 2009, and 2011. We offer commentary regarding differences, where relevant, between historical survey results and the 2014 findings, along with observations reflecting both long- and short-term trends.
Seventy-two fund sponsors representing $859 billion in assets, and 211 investment management organizations with $15 trillion in assets under management, provided detailed fee practices and data on 15 asset classes. Results were supplemented by actual and published fee information sourced from Callan’s fund sponsor and investment manager databases, as well as other industry sources.
Key Findings:
*Investment management fees represent 46 basis points (bps), on average, of fund sponsors’ total assets, up from 37 bps in
2009. The difference between the median and average has climbed over this time period. Other data in Callan’s fee survey also reveals a divergence between the funds that pay the most and those that pay the least in investment management fees.
*The range between funds that paid the most (10th percentile) and those that paid the least (90th percentile) increased dramatically:
from 56 bps in 2009 to 73 bps in 2013. Differences in investment policy, and notably asset allocation, can lead to
substantial disparity in fees. While some funds are increasingly looking to low-cost, public market index strategies, others are
investing a greater portion of their portfolio in high-cost alternative assets. Other key survey findings include:
Alternatives, which are consistently the most expensive asset class, are facing fee compression: the median total asset class fee declined from 134 bps in 2009 to 99 bps in 2013, and the 90th percentile fell from 174 bps to 152 bps. Large allocations to alternatives can greatly increase overall investment management fees.
Correlations between percentage of total portfolio allocated to alternatives and fees paid (in bps) were strong in 2013 (+0.70).
Total U.S. and non-U.S. equity fees paid increased marginally from 2009 to 2011, but declined from 2011 to 2013. Median U.S. equity fees run about 60% of their non-U.S. counterparts. Non-U.S. fees are typically higher in part due to research expenses. Fixed income median expenses were flat from 2009 to 2013.
What’s on the minds of larger defined contribution (DC) plan sponsors? According to a recently released Callan Associates study conducted in late 2015 with almost 150 employers, fees, investments and compliance top the list. With more resources devoted to running this DC plan, what happens in the larger market usually trickles down market.
Though the number one action taken to reduce fiduciary liability was updating or reviewing their investment policy statement, followed by reviewing fees, the number one priority in 2016 will be compliance.
Other key findings from the Callan DC study include:
*61% use auto-enrollment with 1 in 5 employing re-enrollment for current employees
*88% of plans offer financial advice to employees
*75% benchmark their fees as part of fee calculation and 53% rebate revenue sharing
*86% use TDFs (target date funds) as their default option of QDIA – usage of the proprietary funds of the record keeper as their QDIA is down to 32% from 70% in 2011
*15% of plans increased the number of funds while 11% decreased the number
The DOL’s 2012 fee disclosure regs and the 2006 Pension Protection Act (PPA) were cited as the most important events affecting DC plans showing that fees and auto features paved by the PPA are keys drivers for lawmakers and plan sponsors.
Though there is a lot of noise about the pending DOL conflict of interest rule aimed at increasing oversight of DC plans as well as IRAs, most affected will be advisors, especially those selling proprietary products, and broker dealers that will have to impose greater scrutiny over their advisors that manage DC plans and IRAs.
The DOL rule could limit plan participants access to advisors and advice as well as education especially when they separate from employment but will have little impact on employers running their plan.
How do investors pick the winning asset class? What is the importance of asset allocation and how do you build an effective asset allocation strategy? Through this deck, find answers to the benefits of equity, debt and gold assets and how does one select mutual funds to fulfill long term goals.
www.Quantumamc.com
High Net Worth Webinar Series - Tax Planning and Update for 2022Citrin Cooperman
As 2021 comes to an end, business owners and individuals are seeking opportunities to maximize their savings through year-end tax planning. This webinar session will help you navigate the many complexities, obstacles, and impending tax landscape changes that the 2021 tax year brings to the table and what 2022 has in store.
Risk Management at Wellfleet Bank: All That Glitters Is Not GoldHira Naz
Case Study Solution: Gatwick Gold Corporation
Case Study Solution: Gatwick Gold Corporation
Risk Management at Wellfleet Bank: All That Glitters Is Not Gold
Advanced Financial Risk Management
Institute of Business Management
Callan’s 2014 Investment Management Fee Survey provides a current report on institutional investment management fee payment practices and trends. To collect this information, Callan sent an electronic questionnaire to a broad sample of U.S.-based institutional fund sponsors and investment management organizations. Respondents provided fee information for calendar year 2013 (specific dates varied by organization, but the majority were as of December 31, 2013), and perspective on fee practices and perspectives for 2014. We supplemented this data with information from Callan’s proprietary databases to establish the trends observed in this report.
Callan conducted similar surveys in 2004, 2006, 2009, and 2011. We offer commentary regarding differences, where relevant, between historical survey results and the 2014 findings, along with observations reflecting both long- and short-term trends.
Seventy-two fund sponsors representing $859 billion in assets, and 211 investment management organizations with $15 trillion in assets under management, provided detailed fee practices and data on 15 asset classes. Results were supplemented by actual and published fee information sourced from Callan’s fund sponsor and investment manager databases, as well as other industry sources.
Key Findings:
*Investment management fees represent 46 basis points (bps), on average, of fund sponsors’ total assets, up from 37 bps in
2009. The difference between the median and average has climbed over this time period. Other data in Callan’s fee survey also reveals a divergence between the funds that pay the most and those that pay the least in investment management fees.
*The range between funds that paid the most (10th percentile) and those that paid the least (90th percentile) increased dramatically:
from 56 bps in 2009 to 73 bps in 2013. Differences in investment policy, and notably asset allocation, can lead to
substantial disparity in fees. While some funds are increasingly looking to low-cost, public market index strategies, others are
investing a greater portion of their portfolio in high-cost alternative assets. Other key survey findings include:
Alternatives, which are consistently the most expensive asset class, are facing fee compression: the median total asset class fee declined from 134 bps in 2009 to 99 bps in 2013, and the 90th percentile fell from 174 bps to 152 bps. Large allocations to alternatives can greatly increase overall investment management fees.
Correlations between percentage of total portfolio allocated to alternatives and fees paid (in bps) were strong in 2013 (+0.70).
Total U.S. and non-U.S. equity fees paid increased marginally from 2009 to 2011, but declined from 2011 to 2013. Median U.S. equity fees run about 60% of their non-U.S. counterparts. Non-U.S. fees are typically higher in part due to research expenses. Fixed income median expenses were flat from 2009 to 2013.
What’s on the minds of larger defined contribution (DC) plan sponsors? According to a recently released Callan Associates study conducted in late 2015 with almost 150 employers, fees, investments and compliance top the list. With more resources devoted to running this DC plan, what happens in the larger market usually trickles down market.
Though the number one action taken to reduce fiduciary liability was updating or reviewing their investment policy statement, followed by reviewing fees, the number one priority in 2016 will be compliance.
Other key findings from the Callan DC study include:
*61% use auto-enrollment with 1 in 5 employing re-enrollment for current employees
*88% of plans offer financial advice to employees
*75% benchmark their fees as part of fee calculation and 53% rebate revenue sharing
*86% use TDFs (target date funds) as their default option of QDIA – usage of the proprietary funds of the record keeper as their QDIA is down to 32% from 70% in 2011
*15% of plans increased the number of funds while 11% decreased the number
The DOL’s 2012 fee disclosure regs and the 2006 Pension Protection Act (PPA) were cited as the most important events affecting DC plans showing that fees and auto features paved by the PPA are keys drivers for lawmakers and plan sponsors.
Though there is a lot of noise about the pending DOL conflict of interest rule aimed at increasing oversight of DC plans as well as IRAs, most affected will be advisors, especially those selling proprietary products, and broker dealers that will have to impose greater scrutiny over their advisors that manage DC plans and IRAs.
The DOL rule could limit plan participants access to advisors and advice as well as education especially when they separate from employment but will have little impact on employers running their plan.
How do investors pick the winning asset class? What is the importance of asset allocation and how do you build an effective asset allocation strategy? Through this deck, find answers to the benefits of equity, debt and gold assets and how does one select mutual funds to fulfill long term goals.
www.Quantumamc.com
Measuring Sub Pixel Erratic Shift in Egyptsat-1 Aliased Images: proposed method
1M.A. Fkirin, 1S.M. Badway, 2A.K. Helmy, 2S.A. Mohamed
1Department of Industrial Electronic Engineering and Control, Faculty of Electronic Engineering,
Menoufia University, Menoufia, Egypt.
2Division of Data Reception Analysis and Receiving Station Affairs, National Authority for Remote Sensing and Space Sciences, Cairo, Egypt.
The CECL Workshop Series Part II: Vintage AnalysisLibby Bierman
This webinar covered concerns with methodologies as institutions prepare for the FASB's proposed current expected credit loss (CECL) model. This presentation covered the importance of scenario building, choosing methodologies to test, and gave a deep dive into vintage analysis CECL scenarios.
The allocation of executive compensation resources is being scrutinized by internal and external forces. Regulations, board governance issues, and the lower margins require new thought processes on the various pieces of the compensation puzzle and how they fit together.
Executive Compensation Checklist for New and Experienced Board Members (Credi...NAFCU Services Corporation
Looking for an Executive Compensation Checklist for your Credit Union? This presentation serves as a valuable tool for new and experienced board members in pinning down the latest information on new regulations and compensation philosophies associated with creating a successful executive compensation plan. For more info, visit: www.nafcu.org/bfb
Slides from July 2019 Webinar for Financial Advisors. Topic is Nonqualified Deferred Compensation (NQDC) for Financial Advisors. Presenters include Phil Currie, Managing Director, Fulcrum Partners, an executive benefits consultancy.
•Gain an understanding of the CECL model and impact on the Allowance for Loan Losses calculation.
•Understand the potential impact of the CECL on Credit Union financial statements upon adoption.
•Understand the differences between the current allowance for loan losses accounting model and the proposed CECL model.
This is a copy of the presentation of the August 2010 Webinar on High Net Worth SMSF strategies conducted on 'thedunnthing' blog, http://thedunnthing.com
CECL Methodology Series for Consumer Loan PoolsLibby Bierman
Recording: http://web.sageworks.com/cecl-methodology-webinar-series/
In this webinar series, Sageworks consultants review the different loss rate methodologies that will be available for banks and credit unions under CECL and their applicability for different loan segments. In this session, they look at consumer loan pools and accounting for them under CECL.
CEO Pay: A Middle Market Perspective, presented to the Minneapolis-St. Paul NASPP Chapter on March 27, 2014.
Executive compensation has continued to evolve in recent years. Companies are increasingly required to balance the need for competitive pay with the need to respond to increased scrutiny, particularly with regard to the relationship between pay and performance.
To provide some insight and perspective, Buck Consultants has recently completed a study of executive compensation practices and trends in the middle market. In this study, Buck analyzed total direct compensation for Chief Executive Officers in companies listed on the S&P 400 MidCap Index.
In this presentation, we will discuss our findings with regard to both current practices and trends for CEO pay in these Mid-Cap companies. Because long-term incentives typically comprised the largest portion of executive compensation, our study focused on prevalence, mix, usage and design of equity vehicles. Finally, we will look at governance issues, including corporate governance concerns and the degree of alignment between pay and performance.
Compliance & Communication: The Dynamic Duo of DisclosurePearl Meyer
In the years since Dodd-Frank, we’ve seen CD&As undergo a sea change in both requirements and communication styles. This single, critical document must address increasingly complex compliance issues and at the same time, connect the dots between compensation strategy, business performance and pay outcomes. And it must clearly explain these points to multiple audiences, including employees and the media. There is no single answer or template, but today we’ll explore ideas that will help companies effectively tailor their CD&A to deliver the right balance of compliance and public communication.
Our discussion will be lead by a team from Pearl Meyer & Partners’ New York office, Managing Director Deborah Lifshey and Vice President Sharon Podstupka.
Retirement planning is a constantly changing subject. John Friar, AIF, of HJB Financial walks employers through the new landscape of retirement planning.
University at Buffalo Webinar - DIY Wealth Book with Ripsaw Wealth ToolsStanleyKon
Stanley J. Kon, PhD explores concepts of his new book, Do-It-Yourself Wealth Management: Take Control of Your Financial Life!, using Ripsaw Wealth Tools. (RipsawWealth.com) We are all our own wealth managers, regardless of who you pay for advice and trade execution. Given the potential conflicts of interest, managerial risk and excessive fees, it is not difficult to do better for yourself than what most professionals can do for you. Even if you choose to pay a professional, it is still your responsibility to monitor them concerning suitable strategies and performance net of fees. Investment portfolios have a lot of moving parts with multiple risk dimensions. In this presentation, I will take you through a disciplined investment process for wealth portfolio construction, monitoring and revision involving many accounts and many investments with overlapping risk dimensions.
Nonprofit Executives and their boards often wonder if their investment policies are lacking. Through his work on the Study on Nonprofit Investing (SONI), Dennis Gogarty of Raffa Wealth Management has developed an easy-to-follow investment policy framework which will assist nonprofits in developing or strengthening their organization’s policy and procedures.
The Age of Alignment Part III: Moving From Theory to PracticePearl Meyer
This series is designed to explore a fundamental question that was raised by the NACD Blue Ribbon Commission on Strategy Development: “Does your company’s incentive structure reinforce or unintentionally undermine its chosen strategy?”
Parts 1 and 2 – which are available for replay – outlined a number of diagnostic tools and approaches that boards can use to uncover potential misalignment between their strategy and the compensation program design. We’ve also looked at various protocols that can help improve alignment and drive toward desired goals.
As we know – protocols cannot anticipate every situation. The fresh news on the proposed SEC rules regarding pay for performance disclosure is a perfect example!
I’m joined today by Jim Heim and Theo Sharp, both managing directors in the Boston office of Pearl Meyer and Partners and today we’re going to talk about some real-world examples that show how companies have put these smart theories and protocols into practice and how they’ve remained disciplined toward strategy execution but also flexible to accommodate the unexpected.
Similar to Opeb investments the danger in playing it safe (20)
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
1. Elemental Economics - Introduction to mining.pdfNeal Brewster
After this first you should: Understand the nature of mining; have an awareness of the industry’s boundaries, corporate structure and size; appreciation the complex motivations and objectives of the industries’ various participants; know how mineral reserves are defined and estimated, and how they evolve over time.
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
How Does CRISIL Evaluate Lenders in India for Credit RatingsShaheen Kumar
CRISIL evaluates lenders in India by analyzing financial performance, loan portfolio quality, risk management practices, capital adequacy, market position, and adherence to regulatory requirements. This comprehensive assessment ensures a thorough evaluation of creditworthiness and financial strength. Each criterion is meticulously examined to provide credible and reliable ratings.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Yes of course, you can easily start mining pi network coin today and sell to legit pi vendors in the United States.
Here the telegram contact of my personal vendor.
@Pi_vendor_247
#pi network #pi coins #legit #passive income
#US
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdf
Opeb investments the danger in playing it safe
1. OPEB Investments:
The DANGER in Playing it Safe
Mary Fedorak
MACM Regional Product Specialist
222 North LaSalle
Suite 910
Chicago, IL 60601
(312) 523-2438
fedorakm@pfm.com
www.pfm.com
Donn Hanson
Director
800 Nicollet Mall
Suite 2710
Minneapolis, MN 55402
(612) 371-3720
hansond@pfm.com
www.pfm.com
January 17, 2013
Mark D. Meyer, JD, FSA
Van Iwaarden Associates
840 Lumber Exchange
10 South Fifth Street
Minneapolis, MN 55402
(888) 596-5960
markm@vaniwaarden.com
www.vaniwaarden.com
Tony Jacobs
Treasurer, LCWM School Board
607 Knights Lane
Lake Crystal, MN 56055
(507)726-2323
4. Background of GASB Statements
4
OPEB in the Media
“School districts struggle to pay retirees' health benefits”
“The next retirement time bomb”
“Officials continue to grapple with liability issue”
“District is stretching out OPEB burden”
5. What is an OPEB?
• Form of deferred compensation
• Promise to provide retiree benefits must now be accrued
during the working years of employees
• Post-retirement benefit other than pension
– Including:
• Retiree medical, life, vision, dental
• Implicit retiree medical subsidy
– Not Including:
• Early retirement incentives, severance based on unused sick pay,
vacation and compensated absences
5
6. Implicit Rate Subsidies for Retirees
• In health insurance plans where a government’s retirees
and current employees are insured together as a group
• The premiums paid by the retirees are lower than they
would have been if the retirees were insured separately
6
7. The Actuarial Model for OPEB Liability
7
Data Assumptions Methods Plan Provisions
Actuarial Model
Accounting Results
• Balance sheet liability
• Accounting expense
Liabilities
• Accrued liability
• Normal cost
Projected Payments
(Present Value of Benefits)
9. Distinction Between Accounting and Funding
• Accounting is required by GASB
– Measure liabilities
– Allocate expense to current year
– Report
• Funding is a management choice
– Balance assets and liabilities
– Match contributions and expense
– OPEB bonds now require a referendum
9
10. Two Methods of Funding
Actuarial Method
Paying to an OPEB plan
an amount that is
expected to be
sufficient to pay for the
benefits of employees
after they are no longer
working
Pay-as-you-go
Paying an amount each
year equal to the
benefits distributed or
claimed in that year
10
11. Health Care Costs Are Age Related
11
Age Monthly Cost Index to 45
25 $245 55%
30 284 64%
35 329 74%
40 382 86%
45 442 100%
50 513 116%
55 594 134%
60 689 156%
65 287 65%
70 333 75%
75 387 88%
Difference between actual cost and premium is Implicit Subsidy
12. Implicit Healthcare Subsidy
12
Insured Medical Plan Costs
Monthly premium $400
Retiree monthly contribution $200
Net employer cost $200
GASB 43/45 Interpretation
Retiree age-specific cost $520
Retiree monthly contribution $200
Net employer OPEB cost $320
13. GASB Actuarial Valuation Required
• Groups over 200 total membership – every 2 years
• Groups under 200 – every 3rd year
• Groups under 100 – “alternative measurement method”
permitted (intended to make it possible to do calculations
without using an actuary)
13
14. Annual OPEB Cost Definitions
• Annual Required Contribution (ARC)
– Normal cost + amortization of unfunded actuarial accrued liability over
maximum 30 year period
• Net OPEB Obligation (NOO)
– The cumulative difference since implementation between the annual
OPEB cost and the employer’s contributions
• If Net OPEB Obligation exists…
– Annual OPEB Cost=ARC + one year’s interest on NOO + adjustment to
ARC
•ARC adjustment is the discounted value of the balance of the net OPEB
obligation
14
15. OPEB Funding Rules
• GASB’s requirements for a funded plan
– Employer contributions irrevocable
– Assets dedicated to providing retiree benefits (establishing a Trust)
– Assets protected from creditors
• Trust funding vehicles
– 501(c)(9) trust, aka VEBA
– Section 115 Trust
– Insurance Contract
15
16. Implications of Funding
• Potential higher discount rate
• Greater flexibility in investments
• Smaller ARC and Net OPEB Obligation
• Better credit rating
16
* Note that pre-funding is not required
17. Authorized Investment Considerations
• Permitted ‘NON’ OPEB Trust considerations
– Short term horizon
– Uncertain cash flow
– 1st priority…protect investment principal
– Limited by M.S. 118A
• Bank Deposits and Certificates of Deposit
• Local Government Investment Pools
• Municipal Notes
• Commercial Paper, etc.
– Local investment policy guides investment strategy
• MSBA model policy
• Often written with no consideration of OPEB Trusts
17
18. Authorized Investment Considerations (cont.)
• OPEB Trust considerations
– Long term horizon
– Predictable cash flow needs
– 1st priority…achieve long term growth
– Limited by M.S. 356A
• All provisions of 118A permitted
• Equity exposure permitted
– Local investment policy guides investment strategy
• Identify asset allocation targets
• Clarify liquidity needs
• Portfolio limitations
18
19. Long-term Equity and Bond Returns Have Outpaced Inflation
Annualized 5 Year Rolling Equity & Bond Returns
DOMESTIC EQUITY
Geometric Mean: 10.67%
U.S. INFLATION
U.S. INFLATION Geometric Mean: 5.60%
In t e r v a l: 6 0
R e t u r n V a l u e s
3 0 . 0 %
2 8 . 0 %
2 6 . 0 %
2 4 . 0 %
2 2 . 0 %
2 0 . 0 %
1 8 . 0 %
1 6 . 0 %
1 4 . 0 %
1 2 . 0 %
1 0 . 0 %
8 . 0 %
6 . 0 %
4 . 0 %
2 . 0 %
0 . 0 %
- 2 . 0 %
- 4 . 0 %
- 6 . 0 %
- 8 . 0 %
- 1 0 . 0 %
D e c
1 9 5 0
D e c
2 0 1 2
Geometric Mean: 3.86%
D e c
1 9 5 5
D e c
1 9 6 0
D e c
1 9 6 5
D e c
1 9 7 0
D e c
1 9 7 5
D e c
1 9 8 0
D e c
1 9 8 5
D e c
1 9 9 0
AGGREGATE
FIXED INCOME
D e c
1 9 9 5
D e c
2 0 0 0
D e c
2 0 0 5
DOMESTIC EQUITY
Geometric Mean: 10.67%
AGGREGATE
FIXED INCOME
Geometric Mean: 5.60%
Geometric Mean: 3.86%
19
S&P 500 TR Barclays Aggregate Bond (1976-2011) and 50% Intermediate Corporate; 25% Int. Govt; and 25% US Long-term Govt (1950-1976)
_____ Consumer Price Index
Source: Morningstar En Corr/ Ibbotson Associates
20. Pre-Funding Advantage
• Best practices in managing OPEB liabilities include
funding
– Pay-as-you-go funding basis is unsecured borrowing
against future revenues
– Fund OPEB at the same time as other compensation
• Major advantages to having an OPEB trust:
– Improved credit rating
– Uses current tax dollars to pay for current compensation
– Prudent long term investments reduces the cost
20
21. Discount Rate Advantage
• Discount rate is based on expected rate of return
• OPEB Trust assets will earn a higher rate of return
– Higher rate of return means higher discount rates
– Higher discount rate means lower liabilities
– Lower liabilities produces a stronger balance sheet
• Unfunded OPEB liabilities come from general assets
– Internal School District assets are severely restricted to the
safest and lowest return investments
– Lower discount rate means higher liabilities
21
22. Discount Rate Advantage Example
6% Return 4% Return Increase
Retiree liability - for
payments before age 65 $478,311 $499,169 4%
Active liability $594,320 $686,001 15%
Total liability $1,072,631 $1,185,170 10%
22
The higher the investment return the smaller the liability and
the less assets needed to pay for the promised benefits.
23. Predictable Long Term Cash Flow
23
Why invest for the short term when the cash flows are long term?
26. Short term strategy for long term obligation
Source: Bloomberg
An investment strategy based upon M.S.
118A restrictions will likely deplete OPEB
Trust prematurely!
2-Year U.S. Treasury Note Yield
26
30. S&P 500 Has Generated Inconsistent Historical Returns
7
6
5
4
3
2
1
0
Frequency of S&P 500 Calendar Year Returns since 1926
Only 5 out of 87 calendar year periods has the S&P 500 return been between 8%-12%
Source: Morningstar EnCorr/ Ibbotson Associates
30
I A S B B I S & P 5 0 0 T R U S D : D e c e m b e r 1 9 2 6 - D e c e m b e r 2 0 1 2
R e t u r n
N u m b e r
- 4 4 . 0 % - 3 8 . 0 % - 3 2 . 0 % - 2 6 . 0 % - 2 0 . 0 % - 1 4 . 0 % - 8 . 0 % - 2 . 0 % 4 . 0 % 1 0 . 0 % 1 6 . 0 % 2 2 . 0 % 2 8 . 0 % 3 4 . 0 % 4 0 . 0 % 4 6 . 0 % 5 4 . 0 %
32. 32
Great Opportunities Exist Outside The U.S.
World Market Capitalization
11997700 11 22001122 22
22003300 33
2012 Total Market Capitalization: $29.5 Trillion 2
1) Data from BlackRock, Inc. which includes developed only
2) Data from MSCI: includes total U.S. ($13.4 Trillion), ACWI ex US ($16 Trillion)
3) Projection from Goldman Sachs
33. Board Member Implications
• Fiduciary Responsibility
– Know the Investment Policy
– Monitor the Investment Performance
– Rely on the Experts
• Investment Expertise
– No requirement to be an expert
– Hire expertise
• Administration Expertise
– Experts at school administration are probably not experts on OPEB
investments
33
34. DANGER in Playing it Safe
• Safe does not automatically mean prudent
– Fiduciary duty to be prudent
• Bond proceeds may be depleted prior to final bond payment
• Investment earnings may be lower than bond interest
• Disappointed constituents
• Less money for school operations
• Lost opportunity cost
• Headline risk
34
35. 35
School Board Action Plan
• Estimate the projected life of the OPEB Trust
• Review investment policy and its handling of OPEB
• Amend policy and investment strategy appropriately
A detailed actuarial report is the start of the process
36. Actuarial Caveats
• Retiree medical cash flows are less predictable than
retirement benefits
• Changes in federal health care laws and benefits materially
affect the projected benefits
• Changes in investment policy materially affect investment
return expectations and the discount rate
• Health care cost inflation is higher and more variable than
general consumer price inflation
36
37. Disclaimers
Any investment advice in this document is provided solely by PFM Asset
Management LLC. PFM Asset Management LLC (“PFMAM”) is an investment
advisor registered under the Investment Advisers Act of 1940. PFM Advisors is
a division of PFM Asset Management LLC. Public Financial Management Inc. is
not providing and is not responsible for any investment advice herein.
This material is based on information obtained from sources generally believed
to be reliable and available to the public, however PFM Asset Management LLC
cannot guarantee its accuracy, completeness or suitability. This material is for
general information purposes only and is not intended to provide specific advice
or a specific recommendation. All statements as to what will or may happen
under certain circumstances are based on assumptions, some but not all of
which are noted in the presentation. Assumptions may or may not be proven
correct as actual events occur, and results may depend on events outside of
your or our control. Changes in assumptions may have a material effect on
results. Past performance does not necessarily reflect and is not a guaranty of
future results. The information contained in this presentation is not an offer to
purchase or sell any securities.
37
Editor's Notes
Many headlines about OPEB since GASB 45 was announced.
Pensions have taken the brunt of criticism recently. Recession depleted funding levels, but OPEB was generally not prefunded anyways. Good time to start?
More malleable than pensions.
Retirement income/unrestricted payment vs. enhancement to retiree medical plan.
Contract split benefits between insurance and severance, but GASB thinks in terms of pension vs. OPEB vs. compensated absence.
GASB 47 utilizes calculation methods of other statements, but requires at least a footnote disclosure explanation of effect of termination benefit.