Providing trustee education and industry information in an effort to Protect

defined benefit Plans.

FPPTA Florida Public Pension Trustees Association

August 2010

message from the ceoraymond t. edmondson, Jr.

I hope this finds you and yours well. August in Tallahassee, temperatures of 100° plus, heat indexes of 112°, not much fun. Our summer is like a northern winter where people just stay inside. This e-news letter is gaining popularity with people subscribing to it on the FPPTA website, FPPTA.org. The FPPTA is an educational corporation and has been forced into defending against legislative acts brought by local and state politicians, fueled by the Florida League of Cities and the misinformed media. If these actions against public employees are allowed to be enacted, they

will eat at the basic fiber of our society.

Most politicians are interested in two things, “getting elected” and “getting re-elected.” Your public employees serve society for 20, 30 or more years. The FPPTA has enhanced its research and educational programs in an attempt to educate the media and politicians so that the services provided don’t wind up 48th out of 50 states like our educational standards. Where did that Lotto money go? Same place as the money to fund employee benefits.

If a 401K type program lost 40% to 50% of its value due to the recession, and a defined benefit pension system lost 14% to 17%, why do the politicians want to go

to a 401K type program?

If in the long run it is cost prohibitive to go to the Florida State Retirement System for less benefits and lose total control over your financial future, why do some politicians recommend doing either one of these so-called solutions? Is it looked on as a quick fix that will last until they are no longer in office? Or to blame it all on the employees and their unions?

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History tells us unions are created to protect employees from uncontrollable acts of employers. There is no binding arbitration for public employees, just collective begging. All benefits are agreed on by the same politicians that refer to excessive cost of benefits. In some situations, politicians also sit as trustees on public pension trust funds (defined benefit pension plans). Now you may ask, “How can one serve two public entities at the same time?” I would think this would be a violation of their fiduciary responsibility and dual office holding. We recently had a City Commissioner, who also sits as a pension trustee, vote against the pension system stating, “My first obligation is to the city.” If that’s not a violation of state law, I never heard of one. We must clear up these practices and fully fund promised pension obligations and education.

Raymond T. Edmondson, JrFPPTA Chief Executive Officer

In the midst of the August heat the FPPTA is already look-ing towards September’s Trustee School. You should have already received an e-mail from us with the information about the school and you should be receiving any day if not already the information in the mail pertaining to the Septem-ber Trustee School to be held at the PGA National Resort in West Palm Beach, Florida.

We have made several changes to this year’s school that we think will both improve the quality and efficiency in which we do things. We will be introducing an improved scanning system in order to keep a more ac-curate record of your CPPT and CEU credits. You will now need to scan in and out of sessions to receive credit. You will receive more detailed information in your registration packet at the school.

In addition to the improved scanning system, we are also introducing a new agenda item on Monday morning to explain some of our communications and website initiatives. In a broadcasted session throughout all of the session rooms Susan Marden and myself, Kim Ryals, will walk you through some of the more useful and practical information that both makes it easier to take advantage of the new FPPTA website and FPPTA research.

Wednesday after testing we will host the Public Pension Industry Forum. An open forum to address GASB and its impact on public pension plans.

I’d like to invite you to our website for additional information for this September’s school, agenda, and registration informa-tion. We look forward to seeing you in September at the PGA National Resort.

Sincerely,

Kimberlie RyalsFPPTA Chief Operating Officer

fPPta fall trustee schoolKimberlie ryals, chief operating officer

CLICK HERE FOR MORE INFORMATION OR TO REGISTER

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2010 fishing tournamentWe just completed our 6th Annual Fishing Tournament at the Tarpon Lodge. Boy it was a hot one! We have had people making reservations for next year and we haven’t even set the date yet! We had wonderful participation this year with 17 teams and 51 adults fishing. We had 14 children under the age 14. Tim and Melissa Olsen were able to obtain four rods and reels donated by Strike Zone and they discounted the other eight. Tim and Melissa also put together a great tackle bag loaded with goodies for every child. ARC Dehooker donated dehookers, Plano discount the tackle bags, West Marine donated hooks & weights DOA donated weights and bait and Bass As-sign donated baits.

I would like to take this opportunity to thank our Fishing Tournament Committee:

Joe Bogdahn, Steve Stack, Grant McMurry, Pete Prior, Tim and Melissa Olsen and Brian Fenske. With their help we had a successful tournament.

2010 Winners:Largest Trout Team FS – Brian Fenske, George Farrell, Travis Farrell, Steve Stack, Sam Stack

Largest Snook Team Spilly – Mike Ilczyszyn, Reid Carner, Gregg Mann

Largest Red Team Spilly – Mike Ilczyszyn, Reid Carner, Gregg Mann

Largest Fish with a 37” TarponTeam Lip Stretchers - Chris Polaszek and Jay Rodriguez

Kids Category:

1st Prize 8 and under – Miles Bogdahn

2nd Prize 8 and Under – Garrison Bogdahn

1st Prize 9 – 14 – Garrett Henderson

2nd Prize 9 – 14 – Zach West

Sunday’s Winners:

Largest Fish – Team Palm Beach Gardens PD - Jay Spencer, Eric Spencer, Ron Council, Kevin Council

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We’d like to thank the 2010 Fishing Tournament sponsorsICC Capital ManagementBenefits USA - Bernstein Litowitz Berger & Grossman - BNY ConvergEx Group - Bogdahn Group Dana Investment Advisors - DePrince, Race & Zollo - FPPTA - Garcia Hamilton - Integrity Fixed Income JK Milne - Mesirow Financial – Milberg - Morgan Asset - Richmond Capital RidgeWorth Investment Rockwood Capital - Salem Trust - Sawgrass Asset Management

Did you know? • American workers with little or no retirement savings increased for the third straight year in 2009. • An Employee Benefit Research Institute survey shows that those with less than $10,000 in retirement savings increased to 43 percent in 2010, up from 39 percent in 2009. • The average 401(k) balance is just $63,000. • An estimated 35 percent of early baby boomers will be unable to maintain their pre-retirement income, and the risk is higher for those who have no workplace retirement plan (50 percent), or

just a 401(k) account (49 percent).

The FPPTA solicited the expertise of professionals in the actuarial, legal, accounting, and financial and asset management industries to analyze the relative merits of defined contribution plans as compared with defined benefit plans in its report: 401(k) Accounts are not Retirement Plans, which was presented at the organization’s 26th annual convention, held June 27-30th in Naples.

The report’s findings shed light on the challenges facing employers and taxpayers in funding retirement benefits that must provide for workers whose life expectancies are lengthening, and whose need for financial support will be necessarily met by public assistance if their retirement plans fail them.

“Defined benefit plans guarantee a pension for life. Defined contribution accounts only deliver what is in them when a worker retires,” explained Raymond Edmondson, Jr., CEO of the FPPTA. “Media attention focusing on the alleged high cost of public pension benefits in Florida misdirects public attention away from the more important and fundamental issue, which is that Americans in both the private and public sectors will suffer if defined benefit pensions are lost. Defined benefit plans are not lavish, nor are they too expensive for taxpayers or private sector employers,” insists Edmondson, who believes taxpayers lose far more in the long run when 401(k) accounts fail to support retirees depending on them.

During the month of August, the FPPTA will be distributing this report to newspaper editors and editorial page writers in an effort to focus attention on the harsh realities of abandoning the defined benefit model of retirement funding in favor of the often proposed defined contribution account. Please feel free to share this important research with your local editors and town/city officials and include contact information for Fred Nesbitt at fnesbitt911@gmail.com , or Ray Edmondson at ray@fppta.org .

Please refer to a short summary and link to the full report below.

401(k) accounts are not retirement Plansan fPPta Publication

Congress created 401(k) accounts in 1978 as a way to close a loophole on executive bonuses. They were never intended as a replacement for traditional defined benefit pension plans--but today that is how they are often

perceived, and as a result, many American workers will never have sufficient funds to retire as they would with a traditional or defined benefit retirement plan.”The failure of 401(k) accounts as a primary retirement vehicle can be attributed to three fundamental and incontestable shortcomings. 1. When saving for retirement becomes optional, the average American grossly under-saves or simply opts out altogether. 2. Defined contribution accounts compel average Americans, who are untrained and inexperienced in managing stocks, to become expert portfolio managers. 3. The 401(k) structure in its current form encourages financial failure.”

The report can be found in its entirety at http://www.fppta.org/FPPTA/Research.aspx

401(k) accounts are not retirement Planssusan marden, Public relations consultant

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news clipsfred nesbitt, fPPta media consultant

Pension Plan Will Need Creative AdjustmentEditorial, Sun Sentinel, July 8, 2010

Taxpayers probably don’t want to hear it, but the state pension fund is part of an obligation that must be met. It is part of the compact the state of Florida has made over the years when it hires police officers, judges, teachers, and other government workers. Nonetheless, changes are needed to keep the plan sustain-able and keep it from overwhelming public budgets. Florida has passed the increased costs of the $110

billion retirement system on to taxpayers. And Florida remains one of only five states that don’t require some contribution to the system from the workers themselves. But changes need to involve those who get added to the system, rather than those who are in it already — some for decades. As those workers get closer to retirement, the state cannot be changing the rules in midstream by having them pay into the system or adjusting retirement benefits that were part of the compact when they were hired.

Police, Firefighter Pay Getting Greater Scrutiny In SunriseBy Susannah Bryan, Sun Sentinel, July 13, 2010

Some Sunrise police officers are earning overtime pay equal to at least half their salaries, even as city officials look to plug an $8.1 million gap for the budget year that starts Oct. 1. Police officers and firefighters earned a combined total of $1.8 million in overtime in 2009, with $1.43 million going to the police department and the rest to fire-rescue. Last year, 70 officers and 53 firefighters made more than $100,000 thanks to overtime and off-duty detail shifts. Starting pay for Sunrise police is $54,600, compared with $51,110 for a first-year firefighter/paramedic. Lucrative salary increases, steady overtime pay and generous pension benefits are behind the trend, experts say. Dominic Calabro, president of Florida TaxWatch, a government watchdog group in Tallahassee. “Not only is this unsustainable, it’s excessive and outrageous.” “The public has no idea that the millionaire next door is a police or firefighter.”

Evaluating The Gop Gubernatorial Jobs PlansOrlando Sentinel (blog), July 29, 2010

State workers, teachers and law enforcement could be asked to pony up more out of their paychecks to fund Scott’s plan to save $1.4 billion by reforming the state’s retirement system into what’s called a “defined contribution” system, more like a 401(k) in the private sector. The total taxpayer cost of public employee retirement benefits last year was $3.37 billion – so that means Scott could ask state workers, teachers, law enforcement and the like to start covering about 40 percent of the total contribution into the system. Right now, the vast majority of Florida’s 668,000 state and local public workers enrolled in Florida’s retirement system opt for a “defined benefit” to pay them a guaranteed amount of money after retire-ment, presuming they stay in their jobs for at least six years. Gov. Jeb Bush created an investment-plan option for them in 2002 to offer a “defined contribution,” which workers who don’t plan to stay in government their entire careers could take with them when they leave. But only 14 percent of the retirement system enrollees have opted for it. Scott suggested that was “because they don’t understand it yet.” McCollum, who as attorney general oversees management of the FRS on the Florida Cabinet, hasn’t pitched any changes to pension plans.

City Eyes Fire Department Cuts, RestrictionsBy Gary Roberts, Seminole Chronicle, July 14, 2010

Oviedo officials are looking at lowering the city’s level of fire protection to avert a looming budget crisis awash in fire-engine-red ink. Payroll makes up an ever-increasing portion of the department’s spending, accounting for 86 percent of its current $5.1 million budget. Under the existing contract with Oviedo Professional Firefighters Local 3476, the 45 fire department employees received a 30 percent increase in base salaries, compounded over three years. In addition, the city’s contribution to pension benefits also has jumped during this period, due to the rise in salaries, as well as the generally poor performance of the pension-investment market. As a result, it is projected that fire personnel will earn an average of $92,407 next year, including salary and benefits, boosting their compensation level to among the top local fire depart-ments.

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Cocoa Asks Pension Boards To Suggest SavingsBy Rebecca Basu, Florida Today, July 23, 2010

Looking for ways to reduce costs for pensions for city workers, Cocoa officials met with fire, police and general pen-sion board members Thursday asking for their suggestions But many in the audience, which included the pension board members, a small number of city employees and a few interested residents, felt they needed more direction from the city. They were hard-pressed to come up with specific suggestions without knowing how much the city was trying to cut from its budget next year. Administrative Services Director Wendy Widmann said she would take back to council some of the suggestions raised by audience members, which included reducing benefits, drawing on reserve funds or having employees or the city make extra contributions to the plans.[Editor’s note: FPPTA representatives were part of the “interested parties” making suggestions and asking questions – trying to get specifics from the city on their goals.]

Officers Protest Over Retirement PayChannel 7 News, July 21, 2020

Officers from the North Miami Beach Police Department are protesting over retirement pay. The police union is upset because they believe the mayor and city council are taking total control of the police and firefighters’ pension funds with-out seeking any input from officers. “We’re trying to work with the city, but they are trying to cut every benefit or try to eliminate a lot of our benefits, and it’s causing real big moral problems, not only with the police employees but also with general city employees,” said Michael Ponce, President of the North Miami Beach Police Union.

Race To The TopPosted by Joe Klein Time.com, July 6, 2010

The fact is, that the rules governing the hiring and retaining of public employees are vestiges of another era--an era when government had to provide some perks to compete with higher-paying manufacturing jobs. Those perks usually involved job security and generous pension packages. It is time to revise the public pension system. There aren’t so many high-paying manufacturing jobs anymore; the relative security of government work doesn’t need to be augmented by ridicu-lously obstruse procedures for firing incompetents or by 20-year pension packages. A nice 401k, with healthy matching funds, should be sufficient. This is a sad choice, but an essential one. We can either continue to fund the pension system and lose essential services; or we can change the pension system and continue the service-levels--the policing, firefight-ing, emergency response and garbage pickup--that we’ve come to expect. The public seems quite unwilling to continue to pay the higher taxes necessary to sustain both. And given our straitened circumstances, and the need to encourage a new burst of private entrepreneurialism, there is a strong argument that any further government stimulus needs to be ac-companied by a rigorous program of governmental reform.[Editor’s note: Over ¾ of private sector employers have discontinued matching contributions to 401(k) accounts.]

www.publicpensionsonline.com/fppta.html

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City Calls Off Meeting With Jacksonville Police UnionFlorida Times Union, July 21, 2010

At the same time Jacksonville is getting deals in place with some of its unions and making major strides with others, the city cancelled Tuesday’s scheduled bargaining session with the Fraternal Order of Police. Mayor John Peyton called the FOP out by name in his budget address last week and the city hasn’t even offered the 2 percent pay cut the fire union first agreed to July 2 and other unions have since fallen in line with. Instead, the city is still offering a 3 percent pay cut and the elimination of tenure-based raises -- raises the fire union was able to keep. The city also wants any pension reform to include current employ-ees -- unlike reform with every other union that would only apply to new workers.

Florida Retirement System Returns 14%Global Pensions, July 30, 2010

The Florida Retirement System (FRS) Pension Fund posted a 14.03% return for the year to June 30, recording its greatest return over benchmark for the last 25 years. “The fiscal year results show a promising rebound from the near-term volatility of 2008, and pushed the FRS 20, 25 and 30 year returns to 8.18%, 8.98% and 9.56% respectively.” Returns for each of the asset classes were: domestic equities 15.89%; foreign equities 14.18%; fixed income 14.89%; high yield 19.61%; real estate -10.15%; private equity 21.52%; strategic investments 28.88%; and cash 1.96%.

My Word: Pension Investments SoundBy Ash Williams, Orlando Sentinel, July 13, 2010

The FRS Pension Fund continues to be one of the best-run public-pension funds in the U.S. Independent research has deter-mined that it not only is one of the best-funded pension plans in the nation, it was recently recognized by the Pew Center on the States as one of four model pension funds entering 2008 fully funded. Also, the fund has recently been highlighted as obtaining the best investment performance and deemed among the most cost-effective pension providers among its peers.

Drop Program Once Solved Problems But Not Such A Good Idea NowBy Lauren Ritchie, Orlando Sentinel, July 16, 2010

The second way of continuing to work is called the DROP — Deferred Retirement Option Program. (The first is double-dipping – retiring, sitting out six months, and then returning to work.) While DROP might have been an idea that solved a problem in Florida’s boom years, it’s not so wonderful now. State legislators have recognized that double-dipping, too, is bad for governments and agencies and passed a law that went into effect two weeks ago forbidding city, county, school-system and state employees from retiring, then coming back to their jobs in 30 days. Now, they must wait at least six months. And any agency that keeps a job open for six months ought to be asking itself whether that position really is needed.

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Did You Know?

The word Actuary comes from the Latin word “acta” meaning records. In ancient Italy, an actuarius was a person who kept records of certain things for the Roman Senate. The use of the term actuary with its more modern usage probably dates back to the eighteenth century, when it was used to describe persons such as mathematicians who could perform calculations used in the early insurance companies.

Source: Public Pensions & You: Going Up to the Trustee Level, NCPERS

The Florida Legislature was called back to Tallahassee by an “Executive Proclamation” of the Governor, for the purpose of conducting a Special Session solely focused on the pas-sage of a Constitutional Amendment banning oil drilling off the coast of Florida.

As was reported statewide in the media, this was not perceived or welcomed by the leadership of either of the legislative bodies to be necessary. Based on their legal obligation to meet, they convened the Special Session on July 20th, 2010. The House allowed minimal debate and created a number of select committees to develop a more comprehen-sive package dealing with the overall impact of the oil spill. The package will address environmental issues and its‘ future impact on the state, economic impacts to state and local gov-ernments and private business, a review and recommendations on the BP claims process for individuals and businesses seek-ing recovery compensation, and a review and recommenda-tions on how this incident could have been better mitigated. After approximately 1 hour, the House adjourned sine die

The Senate on the other hand, stayed most of the day and voted not to take the constitutional amendment up since the House had adjourned. As directed by the Senate President, the Senate Committee on Florida’s Economy met to begin craft-ing their comprehensive package. This Senate committee has

been meeting and working on an array of other economic is-sues that continue to negatively impact our state’s economy. Remember, the state is still facing a $5.3 billion dollar short-fall for the next state fiscal year, and things on the local level are not much better.

The proposed legislative plan of action, is to return at the end of August or in early September to consider the passage of the recommendations formulated by these legislative committees.

As a reminder, the Primary Election is soon approaching and will be conducted on August 24th . Our FPPTA CEO Ray Ed-mondson requested that I provide the Roll Call Vote on House Bill 5701 which would have abolished the Health Insurance Subsidy for state retirees. For those members who voted YES, they voted against the FPPTA position. You may want to take that into account as you head to the polls.

View: House Bill 5701 Voting History

state legislative updaterandy touchton, fPPta legislative consultant

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FLORIDA PREMIUM TAX DISTRIBUTION AMOUNTS RELEASED

The Municipal Police Officers’ and Firefighters’ Retirement Trust Funds Office has released the amounts available to be distributed to firefighter and police officer pension plans. Please click below to view

respective distribution lists:

CHAPTER 175 PLANSCHAPTER 185 PLANS

President Obama in July signed into law the most far-reaching financial reform legislation since the Great Depression, marking his second major domestic policy win of the year following enactment of the health care bill. The measure, whose major provisions are aimed at ending the notion that some firms are too big to fail, establishing oversight of “systemic risks,”

and creating a regulator for mortgages, credit cards and oth-er consumer financial products, includes several corporate governance reforms.

Obama Signs Financial Reform Bill into Law

President Obama on July 21 signed into law a bill that will overhaul the nation’s regulation of the financial industry and enact a package of corporate governance reforms that have been strongly supported by institutional investors – includ-ing many state and local pension plans.

The measure represents the most significant reform of the financial sector since the Great Depression and is intended to, among other things, end the notion that some firms are too big to fail, establish oversight of “systemic risks,” and create a regulator for mortgages, credit cards and other con-sumer financial products. (Click here for a summary.)

On corporate governance, the legislation would give share-holders the ability to cast advisory votes on executive pay packages and would clarify the authority of the Securities and Exchange Commission (SEC) to issue rules that would enable shareholders to put director nominees on proxy bal-lots. Also, it would require that compensation committees include only independent directors; mandate that companies establish clawback procedures for compensation awarded on the basis of inaccurate financial statements; direct the SEC to clarify compensation-related disclosures; and re-quire federal regulators to issue compensation rules for the firms they regulate. Several public pension plans wrote to lawmakers many times in recent months to urge them to support these provisions, which the funds said are crucial to ensuring transparency and accountability at publicly-owned companies.

“This reform will help foster innovation, not hamper it,” said President Obama, who, along with congressional Dem-

ocrats, argued since 2009 that the reforms in the bill were an important part of the response to the recent financial cri-sis. “It is designed to make sure that everybody follows the same set of rules, so that firms compete on price and qual-ity, not on tricks and not on traps. It demands accountability and responsibility from everyone. It provides certainty to everybody, from bankers to farmers to business owners to consumers. And unless your business model depends on cutting corners or bilking your customers, you’ve got noth-ing to fear from reform.”

Though three GOP senators supported the bill – making pas-sage possible – most Republicans say that the legislation is a counterproductive reaction to the financial problems that contributed to the recession.

“When you cut through all the talking points about what financial regulation will do, the practical, real-world effect of this bill in the near term will be job loss,” Senate Minority Leader Mitch McConnell, R-Ky., said on the Senate floor. “The White House will declare this bill a victory. But for millions of Americans struggling to find work, for millions of small business owners bracing themselves for all the new regulations they’ll have to deal with, for ordinary Ameri-cans who just wanted to see an end to the bailouts, this bill is no victory.”

notes from Washington, d.c.tom lussier, fPPta legislative consultant

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Quote of the Month

“Thought, not money, is the real business capital.”- Harvey S. Firestone

Business interests generally opposed the bill as well, and U.S. Chamber of Commerce President and CEO Thomas Donohue said it is “nothing more than a financial regulatory boondoggle.”

“It won’t strengthen our capital markets, it won’t jumpstart the economy, and it won’t help create any new jobs except in government,” Donohue said.

Besides the corporate governance provisions, the bill will:

• Create the Financial Stability Oversight Council, a 10-member panel of regulators that would identify non-bank entities so large that their failure could threaten the stability of the nation’s financial system. Such firms would be subject to additional oversight by the Federal Reserve, which also would set rules intended to discourage the contin ued growth of large companies.

• Give the federal government the authority to liquidate failing large firms (at the firm’s expense or, if necessary, the expense of others in the industry) and to order companies thought to be getting too big to divest some holdings.

• Explicitly prohibit taxpayer-funded bailouts or liquidations of companies.

• Establish an agency – to be housed within the Fed – that would regulate consumer financial products. The agency, to be headed by a presidentially-nominated and Senate-confirmed director, would have the power to write rules, but the rules could be vetoed by the Financial Stability Oversight Council if the panel determined that they would threaten the country’s financial system.

• Abolish the Office of Thrift Supervision and transfer most of its responsibilities to the Office of the Comptroller of the Currency.

• Empower the SEC and the Commodity Futures Trading Commission to regulate derivatives, and require central clearing and exchange trading for derivatives that can be cleared.

• Force banks to spin off their riskiest derivatives trades, though they would be allowed to hold on to derivatives related to traditional banking operations.

• Implement a form of the Volcker rule to bar banks from investing more than 3 percent of their own money in hedge funds and private equity.

• Require hedge fund and private equity advisors to register with the SEC.

• Increase SEC oversight of credit rating agencies; give investors the ability to sue the agencies; and direct the SEC to devise a mechanism to end “ratings shopping” by issuers of asset-backed securities.

• Require issuers of asset-backed securities to retain at least 5 percent of the credit risk in their securities.

• Empower the SEC to impose a fiduciary duty on brokers who give investment advice.

• Authorize the Government Accountability Office – Congress’ investigative arm – to audit certain activities of the Federal Reserve.

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National Debt Could ‘Destroy the Country,’ Fiscal Panel Lead-ers Say

Comparing the U.S. government’s debt and growing annual deficits to “a cancer,” the leaders of a commission aiming to devise a plan to balance the federal budget said on July 11 that out-of-control spending could “destroy the country from within.”

Members of the National Commission on Fiscal Responsibility and Reform were appointed by President Obama to produce a package of reforms by December that would balance the fed-eral budget - not including several hundred billion dollars in debt interest payments - by 2015. House and Senate leaders have agreed to hold an up-or-down vote on the package before the next Congress is seated in January.

During an appearance at the annual meeting of the National Governors Association, commission Co-Chair Erskine Bowles, the White House chief of staff during the Clinton administra-tion, cautioned against looking for easy solutions.

“We can’t grow our way out of this,” Bowles said. “We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can’t tax our way out. … We’ve got to cut spending or increase revenues or do some combination of that.”

The other co-chair, former Sen. Alan Simpson, R-Wyo., omi-nously noted that the 18 members of the panel – which is even-ly divided between Democrats and Republicans – have “deep, deep differences.” A reform package will need to get 14 votes to be recommended to Congress and Simpson judged the com-mission’s odds of success to be “rather harrowing.”

Democrats generally oppose cuts to entitlement programs such as Social Security, Medicare and Medicaid – which, together, consume about all federal revenues each year – while Republi-cans have largely ruled out any tax increases.

New Law Authorizes Iran-Related Divestment by Public Pensions

President Obama on July 2 signed into law a measure that tightens sanctions on Iran and authorizes public pension funds to divest from that nation.

The sanctions and other measures imposed by the bill are pri-marily targeted at the Iranian government and foreign compa-nies doing energy-related business in the nation. (U.S. compa-nies already are prohibited from conducting business in Iran.) The provisions are intended to punish Iran for its suspected pursuit of nuclear weapons. (Click here for a summary.)

“With these sanctions, along with others, we are striking at the heart of the Iranian government’s ability to fund and develop its nuclear program,” Obama said at the bill-signing. “We’re showing the Iranian government that its actions have conse-quences. And if it persists, the pressure will continue to mount, and its isolation will continue to deepen.”

The White House will have the ability to waive provisions that would otherwise apply to companies in countries that are deemed to be cooperating in the effort to pressure Iran to com-ply with international demands.

If a state or local government does divest from companies with ties to Iran, it is required to submit a notification of the action to the U.S. attorney general within 30 days. The legislation also includes a non-binding “sense of Congress” statement that “the United States should support the decision of any State or local government that for moral, prudential, or reputational reasons divests from, or prohibits the investment of assets of the State or local government in, a person that engages in investment activities in the energy sector of Iran, as long as Iran is subject to economic sanctions imposed by the United States.”

In addition, the measure provides a “safe harbor” for asset managers that is intended to protect them from civil, crimi-nal and administrative actions resulting from divestiture from companies conducting business in Iran’s energy sector.The House passed the bill 408-8 and the Senate passed it 99-0.

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We Want to Hear from youWould you like to see an issue addressed in the next fPPta e-newsletter? is your board

facing a specific challenge or attack that fPPta membership should be aware of?

We welcome your comments, questions, and suggestions.

Please contact ray edmondson at ray@fppta.org

Cuts in Medicare Payments to Doctors Reversed

President Obama on June 25 signed into law a bill that tempo-rarily undoes a 21 percent cut in Medicare payments to doc-tors.

The formula-based reduction automatically went into effect on June 1. The House and Senate went back and forth on leg-islation to undo it before the House on June 24 accepted by a 417-1 vote a bill the Senate passed on June 18.

The measure will raise payment rates by 2.2 percent, retroac-tive to June 1, but only for six months. Obama urged law-makers after the vote to replace the “sustainable growth rate” formula that produced the 21 percent reduction.

“I believe we need to permanently reform the Medicare for-mula in a way that attacks our fiscal problems without punish-ing our hard-working doctors or endangering the benefits on which so many of our seniors rely,” Obama said in a state-ment. “I look forward to working with Congress to achieve that goal, and I’m gratified that, in the meantime, they’ve taken the provisional step of blocking this pay cut.”

Speaker of the House Nancy Pelosi, D-Calif., and other law-makers also expressed frustration with the short-term nature of the bill, but Pelosi, who was initially reluctant to hold a vote on the legislation, decided to move ahead with it because of the uncertainty of the Senate being able to pass a broader measure.

“When they sent this very, very slim reed of a piece of legisla-tion over to us, which wasn’t even really that well written, this was totally inadequate,” Pelosi said. “Members said, ‘No, we have to send something back that is bigger, but let’s see what they can do on [legislation to extend benefits for] unemploy-ment.’ … What we had hoped to do was send it back to them with unemployment insurance and the rest, but it is clear that, at this time, they can’t pass that.”

The $6.4-billion bill would be paid for by prohibiting Medi-care from adjusting hospital claims for three days prior to admitting a patient – which would save the federal govern-ment $4.2 billion – and giving companies nine years, instead of seven, to fund their defined benefit pension plans – which would save the government $2.7 billion.

SEC Adopts ‘Pay-to-Play’ Rules

The Securities and Exchange Commission (SEC) on July 1 adopted rules that target “pay-to-play” practices by invest-ment advisers.

The rules are intended to prevent investment advisers from using campaign contributions to elected officials to try to in-fluence the decisions of public pension fund boards.

The rules will prohibit investment advisers from:

• providing advisory services to a pension fund for two years after making political contributions to officials who can influence the selection of advisers for that fund;

• soliciting contributions for elected officials who can influence the selection of advisers for a fund with which they are seeking to do business;

• paying a third party (i.e., a placement agent) to solicit a government client on their behalf unless that third party is also subject to the new pay-to-play rules;

• directing funds to officials through a third party in an attempt to avoid the above restrictions.

“The selection of investment advisers to manage public plans should be based on the best interests of the plans and their beneficiaries, not kickbacks and favors,” SEC Chairman Mary Schapiro said. “These new rules will help level the playing field, allowing advisers of all sizes to compete for government contracts based on investment skill and quality of service.”

Supreme Court Upholds PCAOB, With 1 Change

The U.S. Supreme Court on June 28 ruled narrowly in fa-vor of a group challenging the constitutionally of the Public Company Accounting Oversight Board (PCAOB), but left the PCAOB mostly untouched.

The PCAOB was established by the 2002 Sarbanes-Oxley Act, a package of accounting and corporate governance re-form measures that grew out of the high-profile bankruptcies of Enron, WorldCom and certain other companies.

The case against the PCAOB claimed that the audit regula-tor is unconstitutional because its five board members are appointed not by the president but by the Securities and Ex-change Commission (SEC), in violation of the “appointments clause” of the US Constitution. Opponents of the PCAOB also charged that the structure of the board violated the “sepa-ration of powers clause” because the SEC could only remove board members for cause. The Court agreed with the latter argument in a 5-4 decision, giving board opponents a very small victory.

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“The Constitution that makes the president accountable to the people for executing the laws also gives him the power to do so,” Chief Justice John Roberts wrote in the majority opinion. “That power includes, as a general matter, the authority to re-move those who assist him in carrying out his duties. Without such power, the president could not be held fully accountable for discharging his own responsibilities; the buck would stop somewhere else.”

However, the Court stopped short of putting the board out of business, as the opponents requested, or requiring Congress to fix the authorizing statute. Instead, the Court excised the “for cause” language in Sarbanes-Oxley and allowed the PCAOB to continue overseeing auditors of U.S. public companies without limitation.

“The Sarbanes-Oxley Act remains ‘fully operative as a law’ with these tenure restrictions excised,” Roberts concluded. Dissenting justices raised the possibility of hundreds of thou-sands of other government officials being affected by the rul-ing, “putting their job security and their administrative actions and decisions constitutionally at risk.”

PCAOB Acting Chairman Daniel Goelzer said board members are “pleased that the decision allows the PCAOB to continue without interruption to carry out its important mission of over-seeing public company audits in order to protect investors and promote the public interest.”

NASRA Rejects Projections of Public Pension Insolvency

A recent paper that predicted that many state pension funds will be insolvent within two decades is seriously flawed, an analysis released by the National Association of State Retire-ment Administrators (NASRA) on June 1 concluded.

Joshua Rauh, an associate professor of finance at Northwest-ern University’s Kellogg School of Management, wrote that either funding or benefit reforms will be needed to keep state pension plans from running out of money, and that it is not unlikely that the federal government will have to bail out some funds.

In rejecting Rauh’s claims, NASRA argues that: • He understates the contributions made by plans, and his “assumption that plan sponsors will pay only the cost of newly accrued benefits, and not any of the cost to amortize their unfunded liabilities, is unsupported by the facts.”

• He fails to provide enough information about the methodology he used, which “leaves the basis for his projections unclear.”

• He does not account for recent benefit and contribution changes made in many states.

The NASRA analysis also opposes Rauh’s recommendations regarding issuance of pension bonds and movement toward defined contribution retirement plans.

While NASRA acknowledged that, “As a result of recent in-vestment experience, employer and employee contributions will likely have to rise in the next few years and/or benefits will need to be modified,” and stated, “we share Professor Rauh’s concern over the difficult financial situation that state and local governments face in the current economy,” it stressed that “we do not believe his analysis or recommendations are helpful for addressing the situation.”

GAO Reviews Hedge Fund, Private Equity Investments by Pensions

Public and private sector pension plans are increasing their investments in hedge funds and private equity, creating new challenges and risks for those funds, according to the Govern-ment Accountability Office (GAO).

The percentage of large pension plans investing in hedge funds jumped from 11 percent in 2001 to 51 percent in 2009, while the percentage investing in private equity grew from 71 per-cent to 90 percent during that time, the GAO’s Barbara Bovb-jerg told a hearing of a subcommittee of the House Education and Labor Committee on July 20. Among those plans with such investments, Bovbjerg said, hedge funds, on average, represented 5 percent of assets while private equity accounted for 8 percent.These investment classes pose unique challenges to plan spon-sors, Bovbjerg said, including:

• Difficulty of valuation caused by the complexity and frequent opaqueness of the investments.

• Investment risks beyond those associated with traditional asset classes, caused by high fees, the use of leverage and other issues.

• Lack of liquidity that restricts an investor’s ability to limit losses.

• Operational risks associated with the failures of people and processes.

Bovbjerg reiterated a recommendation that the GAO origi-nally made in 2008 that the U.S. Department of Labor provide guidance to ERISA plans – especially smaller pension funds – “on the unique challenges of investing in hedge funds and private equity and the steps plans should take to address these challenges.” The Labor Department has not acted on that rec-ommendation, she noted.

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SEC Inspector General Expands Inquiry into Goldman Sachs Case

The Securities and Exchange Commission (SEC) inspector general is expanding his investigation of the agency’s case against Goldman Sachs.

The SEC filed fraud charges against Goldman Sachs on April 16, accusing it of selling mortgage-backed securities that it was betting would decline. The selection of the mortgages backing the securities, according to the SEC, was heavily influenced by Paulson & Co., a hedge fund that Goldman Sachs knew was selling the securities short. Goldman Sachs, the SEC charged, failed to disclose Paulson’s involvement to investors. The SEC announced on July 15 that Goldman Sachs had agreed to pay a record $550 million penalty to settle the charges against it.

SEC Inspector General David Kotz began looking at possible political motives in the case after Rep. Darrell Issa, R-Calif., noted that the commission voted to move ahead with charges against Goldman Sachs on a party-line 3-2 vote and suggested that the action may have been connected with Democratic efforts to pass the financial reform bill then being considered by Congress. SEC Chairman Mary Schapiro has denied that political considerations had any role in the commission’s decision.

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Pete Prior, CPPTChairman

George Farrell, CPPTVice Chairman

Ann Thompson, CPPTSecretary

Steve Aspinall, CPPTTreasurer

Brenda Clanton, CPPTDirector

Gary Clark, CPPTDirector

Joe Liguori, CPPTDirector

Renee Lipton, CPPTDirector Emeritus

Ken Harrison, CPPTDirector Emeritus

board of directors

fPPta staff

Ray Edmondson , CPPT Chief Executive Officer

ray@fppta.org

Peter Hapgood , CPPT Education Consultant

Peterhapgood@fppta.org

Kim Ryals , CPPT Chief Operating Officer

CPPT Coordinatorkim@fppta.org

Fred Nesbitt, PhD FPPTA Media Consultantfnesbitt911@gmail.com

Lois Edmondson Senior Executive Assistant

Membership and Event Registration Specialist

Lois@fppta.org

Susan Marden Public Relations Consultant

smard2@verizon.net

Tom LussierFederal Legislative Consultant

tlussier@lgva.net

Randy TouchtonState Legislative Consultant

randyt@fpfp.org

Howard Bos, CPPT, ChairpersonRichmond Capital Management

W.O. Bell, Vice-ChairpersonWestwood Distributors

Brad Rinsem, SecretarySalem Trust

Michael Spencer, CPPTRBC Global Asset Management

Bruce Feiner, CPPTConvergEx Group

Janna Hamilton, CPPTGarcia Hamilton & Associates

Joe BogdahnThe Bogdahn Group

Grant McMurry, CPPTICC Capital Management

Tracy MusserThompson, Siegel & Walmsley, Inc.

Joe WhiteSaxena White, PA

Katie Byrne, CPPTDePrince, Race & Zollo

Tom CapobiancoLee Munder Capital

Chad LittleFreiman Little Actuaries

Jerry NavaretteThe Boston Company

Chris GrecoSawgrass Asset Management

Mary McTagueAtlanta Capital Management

David LeeDahab Associates

Bob PodgornyDow Jones Indexes

Tom FranzeseLazard Asset Management

Richelle Hayes, CPPTAmerican Realty Advisors

Alison BielerCypen & Cypen

Allison CorballyState Street Global Advisors

Peter Hapgood, CPPT, Board ChairpersonFPPTA Education Consultant

Ray Edmondson, CPPTFPPTA Chief Executive Officer

Kimberlie E. Ryals, CPPTFPPTA Chief Operating Officer

Pete Prior, CPPT, ChairpersonHialeah Gardens Police Pension Fund

Steve Aspinall, CPPT, Board TreasurerSt. Petersburg Police Officers Pension Fund

Joe Liguori, CPPT, DirectorDelray Beach Police & Fire Pension Fund

Ann Thompson, CPPT, Board SecretaryVero Beach Police Pension Fund

Dennis Hole, CPPTFt. Lauderdale Police & Fire Pension Fund

Steve Corbet, CPPTSt. Petersburg Police Pension Fund

Richard Grover, CPPTPensacola Firefighters Pension Fund

Tim Olsen, CPPTMelbourne Fire Pension Fund

Mike Spencer, CPPTRBC Global Asset Management

Jack Farland, CPPTSalem Trust Company

Grant McMurry, CPPTICC Capital Management

Katie Byrne, CPPTDePrince, Race & Zollo

fPPta education committee

fPPta advisory board

FPPTA2946 Wellington circle east

tallahassee, fl 32309Phone: 800-842-4064

fax: 850-668-8514e-mail: fppta@fppta.org

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