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Fully Funded HOOPP Up 13.7% in 2010
Martin Biefer of Director of Public Affairs at HOOPP sent me this media release, HOOPP fully funded; fund reaches $35.7 billion with 13.68% return for 2010:
The Healthcare of Ontario Pension Plan (HOOPP) is reporting returns of 13.68% and net assets of $35.7 billion in its 2010 Annual Report, released today.
"HOOPP continues to be fully funded, providing security and peace of mind for HOOPP members and pensioners," says HOOPP President & CEO John Crocker. Thanks to that healthy funded status, contribution rates for members and employers have not changed since 2004, and will remain the same until at least the end of 2012, says Crocker.
On the investment side, "equities and long-term bonds were our strongest performers in 2010," he says. HOOPP reported returns of 17.38% in Canadian equities and 16.78% in U.S. equities. Canadian long bonds were up by 17.35%, real return bonds were up 11.41%, universe bonds were up 9.54% and corporate credit was up 1.71%. HOOPP’s real estate portfolio had a solid year as well, returning 12.29%. Private equity posted a 9.7% return rate (approximately 16% before foreign exchange impacts).
"2010 was a special year for HOOPP," says Crocker. "We celebrated our 50th anniversary, and rebranded ourselves as the Healthcare of Ontario Pension Plan, a name which is more inclusive of our membership. We were also named one of Canada’s Top 10 Most Admired Corporate Cultures. These excellent results, and the fact that we’re fully funded, put an exclamation mark on a tremendous year – and speak to the dedication and professionalism of the HOOPP team."
The annual report, titled We are HOOPP, is posted on HOOPP’s website, hoopp.com. Here is a link to the annual report: www.hoopp.com/annualreport.
About the Healtcare of Ontario Pension Plan
Created in 1960, the Healthcare of Ontario Pension Plan (HOOPP) is the pension plan of choice for Ontario's hospital and community-based healthcare sector with over 340 participating employers and more than 250,000 plan members and retirees. HOOPP invests the assets of its $31 billion Fund, administers the Plan and pays more than $1 billion per year in pension benefits. The HOOPP defined benefit plan is a formula based benefit that provides security and peace of mind to Ontario's healthcare workforce.
HOOPP was named one of Canada's 10 Most Admired Corporate Cultures in 2010.
HOOPP is governed by a Board of Trustees with representation from the Ontario Hospital Association (OHA) and four unions: the Ontario Nurses' Association (ONA), the Canadian Union of Public Employees (CUPE), the Ontario Public Service Employees Union (OPSEU), and the Service Employees International Union (SEIU). The unique governance model provides representation from both employers and unions in support of the long-term interests of the Plan.
For further information or to arrange interviews, please contact:
Martin Biefer
Director, Public Affairs
Phone: 416-369-8045
You can download HOOPP's 2010 Annual Report by clicking here. I contacted Martin who put me in touch with Jim Keohane, HOOPP's CIO. Jim called me late this afternoon and was kind enough to go over a few points with me.
But let me first go over some highlights from the annual report starting with John Crocker, President & CEO at HOOPP. Below, I copy Mr. Crocker's message (added emphasis is mine):
2010 was a major milestone for HOOPP – not only did we celebrate 50 years of serving our members, but we also better reflected our expanding member base by changing the “H” in our name to the Healthcare of Ontario Pension Plan.
As the pension provider to the healthcare community, it is clear that, while profound changes have taken place, our commitment to ensuring all healthcare workers enjoy a financially secure retirement remains the same.
Once a member starts their pension, it continues for life.
Having led the Plan for the past 10 years, I am more convinced than ever that defined benefit plans like HOOPP are an overlooked, but essential component of private sector retirement income. With a DB plan, a member can rest assured that an investment expert is helping to lay the foundation towards a financially secure future. And shouldering that investment risk is something that we have always taken seriously.
We maintain our credibility with industry-leading investment results, an efficient cost-structure and client-focused service in order to secure the sustainability of the Plan over the long term.
This year, we became one of the few organizations in all of Canada to implement SimCorp Dimension, a best-of-breed integrated portfolio management and investment accounting system, which supports our sophisticated portfolio. While we’ve always had strong investment expertise, SimCorp Dimension provided a way to enhance the solid work of our investment and finance teams while providing new avenues for future investing.
Together with a new liability modeling tool, SimCorp Dimension is part of a new phase in the transformation of HOOPP’s investment management and administration infrastructure. Collectively, this work is central to our liability-driven investment and risk management strategies and provides us with a solid platform for future growth and evolution.
We have also been recognized for our commitment to environmental sustainability standards in our real estate portfolio by striving to achieve Leadership in Energy and Environmental Design (LEED) certification on investments and developments, and continually monitoring health and safety practices of all external property managers and contractors to ensure they are best-in-class.
This past year, HOOPP opened the doors to Telus House Tower, a state-of-the-art office building in Toronto, the AeroCentre V office building in Mississauga and Willingdon Park Phase 8 and 9 in Vancouver.
These commercial developments reflect our commitment to greater environmental and social stewardship and to sustainable development – it’s just one example of how we continue to build a high level of trust within our strong partnerships.
Responding to the needs and expectations of our clients is also of paramount importance to us. We have continued enhancements to transactional and self-service website services such as HOOPP Connect for our members and pensioners, and HOOPP ESE for our employers. We have also established an Employer Advisory Council to guide the identification and development of best practice solutions.
Demonstrating HOOPP’s value to the entire healthcare community remains as one of our top priorities. In our commitment to protect the interests of our members and pensioners, we have increased our visibility with public policymakers to advocate for changes that affect the Planand to bring some insight into areas where pension, investment or other reform is needed.
To this end, in February, we released a White Paper entitled Meeting the Demographic and Retirement Challenge, which featured the views of healthcare providers and stakeholders who attended a HOOPP symposium. The White Paper included key findings on the extension of pension coverage to the growing community health sector, the ease of keeping pension benefits when healthcare workers change jobs, and the need to attract more young people to healthcare professions.
Later in the year, we hosted our first Think Tank in November with close to 50 healthcare thought leaders gathered at the University of Toronto’s Munk Centre to discuss quality healthcare and the sustainability of the system. One of the key reasons HOOPP has delivered on its pension promise for 50 years is simple: our people.
Our culture of excellence was recognized this year as one of Canada’s 10 Most Admired Corporate Cultures, reflecting the very best of our organization – our commitment to providing a secure retirement for those who take care of us, our promotion of an atmosphere of mutual respect and understanding, and our dedication to fostering a culture that is literally award winning.
Why is a culture of excellence so important? It’s simple: good people do good things and produce good results. At HOOPP, a promise made is a promise kept. It’s clear... we are invested in the work we do.
I really like the way Mr. Crocker emphasized the importance of "culture" in his message. As I stated in my last comment on apples and oranges, culture is the single most important thing in any organization and yet few leaders take the time to address it. Not HOOPP, they take their culture very seriously and that's why their culture of excellence was recognized this year as one of Canada’s Top 10 Most Admired Corporate Cultures. Keep in mind, employees answer this survey, so you know it's not just fluffy, bogus PR going on here.
A few more points on HOOPP's culture of excellence (read pages 9-11 carefully; below are the passages I focus on):
At the core of what guides HOOPP is the goal that all healthcare workers have a financially secure retirement.
“We’re all very focused on delivering on that pension promise,” says Jim Keohane, Senior Vice President, Investments and Chief Investment Officer. “We take that to heart – it’s not just something we say. It’s something we live.”
This is the underlying principle that directs HOOPP’s investment team when it comes to making decisions – after all, HOOPP not only administers the pension plan – it invests member and employer contributions to ensure that pensions can be paid now and in the future.
In fact, approximately 80 cents of every pension dollar comes from investment returns while the rest comes from contributions.
Managed in-house by an experienced team of 37 investment professionals, HOOPP’s Fund was valued at more than $35.7 billion in 2010.
...
In recent years, HOOPP has started moving to liability- driven investing (LDI) in managing the Fund, which seeks to have sufficient assets to meet all liabilities – both
current and future.Operating within an LDI framework allows HOOPP to explore approaches that manage asset and liability risk together and enhance returns through controlled risk-taking.
...
Keohane notes that, because HOOPP was conservatively positioned, HOOPP’s investment team not only stayed the course at the bottom of the market – the focus shifted towards the opportunities that were available.
“Is that just luck?” Catford asks. “Well, you certainly can’t get lucky every year. HOOPP has a track record of making sensible investment decisions.”
...“The core of what we do is support entrepreneurs,” says Andy Moysiuk, Managing Partner of HOOPP Capital Partners. “We are a quiet sponsor in the creation and nurturing of companies. We prefer to let entrepreneurs appropriately take the credit for their own success – and that’s at the core of our culture.”
Moysiuk, who is the longest serving leader of a private equity program within an institution in Canada, notes that HOOPP Capital Partners exercise “continuous due diligence” in determining who to partner with and what industry domains to pursue for investment.
HOOPP has been recognized by the industry for its thorough approach.
“We’re a product of collaboration and we’re defined as much by what we don’t do as what we do do,” Moysiuk says.
He adds that HOOPP’s team stays within their core competencies with the view that long-term investing means the duration of hold is anywhere from 3 to 10 years and volatility is expected on a year-to-year basis.
“But we’ve got our eye on the prize: long-term value creation,” he says.
And a key passage on page 11, on the importance of a collaborative team:
With just 37 investment professionals on staff with a combined experience of 600 years, Keohane notes that HOOPP’s investment management team is considerably smaller than might be expected and runs very efficiently. By virtue of the team’s size and culture of collaboration, it is able to communicate effectively and react nimbly to change.
HOOPP’s investment portfolios are designed with the future pension income needs of members in mind. “We’re not investing for the sake of investing.
We’re not taking risk for the sake of taking risk,” says Long. “We’re trying to achieve exactly what the plan member is trying to achieve: a dependable source of retirement income.”
Keohane agrees and adds, “HOOPP does make a difference in people’s lives. It’s really striking when you talk to retirees and they tell you that, because of HOOPP, they can retire in dignity – and that makes it much more satisfying to come into work every day.”
With HOOPP, members are not alone in working towards their financial goals. By virtue of their membership, they have access to a world-class investment team.
With an eye towards the future, HOOPP is committed to moving with the changing healthcare landscape and remaining the leading pension plan provider in the Ontario healthcare community.
The folks at HOOPP get it. It's not about satisfying their personal egos, it's all about delivering the pension promise so that their members can retire in dignity and security.
Let me continue with Management's discussion and analysis of operations:
Against a backdrop of volatility where questions about the strength and stability of the economy and banking industry played out prominently alongside news of the European sovereign debt crisis, 2010 was a year where HOOPP’s net assets increased to $35.7 billion, up from $31.1 billion in 2009.
This was achieved by identifying attractive investment entry points in the financial markets by focusing on the positive aspects of the economy. By remaining focused on the long-term view and anticipating how the various situations would play out in the markets, HOOPP was able to report strong results across its various portfolios, experiencing double-digit returns of 13.68% compared to 15.18% in 2009 and surpassing its investment benchmark of 10.31% by 337 basis points.
It’s important to note that defined benefit pension plans like HOOPP invest for the long term – not for year-over-year results – where pension contributions made today to fund benefits may not be paid out for 40 or more years.
During the last decade, HOOPP’s compound annual rate of return has been 6.28% which translates into $17.2 billion of value to the Fund for members and pensioners.
Because of its commitment to preserving the pension promise, HOOPP’s Board of Trustees is:
- holding contribution rates and benefits stable until at least the end of 2012
- Providing a 1.76% cost of living adjustment for all pensioners on April 1, 2011 (the adjustment is equal to 75% of the 2.35% increase in the consumer price index from December 2009 to December 2010).
And on funding risk, the most important risk of all pension plans, HOOPP is doing just fine:
The recovery of the markets benefited the Fund, with net assets available for benefits ending the year at $35.7 billion, up from $31.1 billion at year end 2009.
Consistent with industry practice and for funding purposes, HOOPP applies a “smoothing” adjustment to net assets, which adjusts the value of the net assets based on the average of the five previous year-end net asset values extrapolated with cash flows and assumed rates of return to year end 2010. This adjustment has a moderating effect on investment gains or losses in a given year and is used to provide stability in pension plans.
The “smoothed” value of net assets as of Dec. 31, 2010, was $35.1 billion, up from $32.6 billion at the end of 2009. As of Dec. 31, 2010, the Plan’s total pension liabilities (the total value of future benefits owing to members based on service earned to date) were $34.9 billion compared to $32 billion at the end of 2009.
In other words, HOOPP is fully funded which is almost unheard of nowadays. Just look at OMERS and Ontario Teachers' pension deficits.
On operating expenses:
HOOPP’s 2010 operating costs were $129.2 million, down 1.6% from $131.3 million in 2009. The decrease is primarily related to strategic initiatives and the elimination of external investment manager fees. The decrease was partially offset by an increase in base annual operating costs largely attributable to higher staff levels and the introduction of the Ontario harmonized sales tax.
HOOPP’s operating expenses are lower than those of many other organizations that offer retirement benefits. While retail mutual funds often have administrative fees of 250 basis points or higher, HOOPP’s investment operating costs work out to just under 26 basis points.
All cynics who think that DB plans aren't better than DC plans should read that last point again. Not only is HOOPP among the top-tier funds in terms of performance, it's also fully funded and delivering outstanding results at lower costs than other similar organizations and retail mutual funds.
On active management and its asset mix strategy:
HOOPP’s assets are actively managed in-house by professional money managers who apply a range of investment strategies and techniques to:
- maximize the Fund’s long-term investment returns within an acceptable level of risk, and
- operate a minimum risk portfolio
HOOPP’s conservative asset mix was designed to reduce the Plan’s overall risk exposure by effectively matching assets with liabilities.
HOOPP’s asset mix strategy:
- supports an LDI approach
- reduces the Fund’s exposure to equity markets, while increasing exposure to long-term bonds, real return bonds and real estate
- better aligns assets with future cash flow requirements, and
- provides the Plan with more effective protection against inflation
HOOPP’s asset mix target is 46% equities and equity- oriented holdings and 54% fixed income and was specifically designed to reduce the Plan’s overall risk exposure by matching assets with liabilities. The asset mix policy allows for a departure from the target by plus or minus 5%. This departure is permitted to:
- accommodate changes in the value of investments within a given portfolio, and
- take advantage of strengths or weaknesses in specific market segments
As of Dec. 31, 2010, the actual asset mix, with the effect of derivatives was 45.1% equities and equity-oriented holdings, and 54.9% fixed income. The Fund also employs additional return seeking strategies through the use of credit derivatives and equity futures, swaps and options. These strategies are considered return enhancing overlays to the government bond portfolio and do not deploy any Fund assets, so they are not reflected in the asset allocation shown at left.
On the use of derivatives (page 17):
HOOPP uses derivatives to:
- implement investment programs at lower cost, greater speed, and with less operational maintenance
- help mitigate investment risk
Derivatives give HOOPP added flexibility for:
- managing and rebalancing asset mix
- reducing transaction costs
- increasing liquidity
- managing foreign exchange risks
- implementing defensive strategies to reduce risks within portfolios
- generating value-added investment returns, and
- matching assets to liabilities more effectively (reducing the prospect of funding shortfalls)
When HOOPP employs derivative strategies to replicate the returns in various asset classes, the actual assets that underlie those derivative strategies are invested in
short-term government securities and investment grade corporate short-term securities.When measuring portfolio performance, the return is determined by combining the return on any applicable derivative contracts with the return on the underlying short-term securities, and this is compared to the appropriate benchmark return for the asset class.
Measures used to manage the risks associated with derivatives include:
- conducting an independent valuation of each derivative contract
- ensuring HOOPP has the liquidity required to meet obligations
- closely monitoring the total outstanding value of contracts with counterparties, and
- fully enforcing HOOPP’s right to counterparty collateral
Let me interject here and add some comments that Jim Keohane provided me on how HOOPP uses derivatives:
- Let's say you wanted to buy US corporate bonds in cash market. You're taking duration risk, F/X risk and credit risk. Derivatives allow you to take credit risk and sell CDS without duration exposure and F/X risk.
- On F/X risk, Jim told me that HOOPP hedges all F/X risk using derivatives because they found using an asset liability approach, it's better to be fully hedged than 50% hedged. This was a surprise to me but he can explained they used to be 50% hedged when they were using an asset only approach but found that under an ALM approach, it was much better being fully hedged.
- Derivatives allow you to hedge beta risk. You can invest in long bonds and overlay equity derivatives to shift away from equity risk premium. Similarly, you can hedge the beta risk of a credit portfolio by using CDX indexes.
- As far as managing counterparty risk, HOOPP has many ISDA agreements with tight collateral limits which it tracks daily using its system to tell them when money is owed to them or when they owe money (bank or HOOPP has to post collateral in the form of bonds).
- Jim told me that HOOPP's long bond portfolio and real return bond portfolio (RRBs) makes between 4.5% to 5% and they layer on risk on top of that to achieve their actuarial rate of return of 6.75%. They take risk using derivatives and by investing in private markets. Their internal alpha operations are like a "multi-strategy fund".
- HOOPP has whistleblower policies but Jim told me that few people come forth to blow the whistle in any organization because of fear of losing their job and being ostracized. This is true which is why I would discuss policies with certified fraud examiners. And on fraud, internal auditors at HOOPP report directly to the board, which is the way it should be at all pension funds.
In terms of absolute return strategies:
HOOPP manages absolute return strategies to income to the Fund regardless of how the markets perform.
The combined use of physical securities and derivatives ensures only residual investment risk remains and income will emerge over the term of the investments. The absolute return strategies contributed 1.77% – or $544 million – to the Fund’s overall return.
The discussion on on investment performance starts on page 19. here are some key points:
- HOOPP’s Canadian equities portfolio reported a return of 17.38% (net of fees) on the year – compared to its benchmark, the S&P/TSX60, which had returns of 14.98%. By comparison, the portfolio returned 34.42% in 2009.
- As in Canada, U. S. equity markets were led by the cyclical sectors such as Consumer Discretionary and Industrials. HOOPP’s U. S. equity return, after converting back into
Canadian dollars, was 16.78%. - The return for HOOPP’s non-North American equity portfolio, after converting back into Canadian dollars, was -2.50%, lower than the benchmark of -2.32%.
- HOOPP made several important real estate acquisitions. At year end, real estate accounted for 11% of the Fund’s total net assets with total value of net equity in the portfolio standing at $3.9 billion, versus $3.3 billion at year end 2009.
- HOOPP's private equity portfolio generated a return of 9.70% for the year. It is important to note that private equity is a long-term asset class that does not lend itself to the annual benchmarking methodology typically applied to public market portfolios. Instead, HOOPP applies an absolute hurdle rate of return threshold as the basis for assessment of whether the asset class is contributing to the organization’s long-term investment objectives.
- This benchmarking approach has encouraged a flexible portfolio design which is complimentary to HOOPP’s broader investment activities, all of which are organized
around the satisfying of long-term pension obligations. - At year end, the carrying value of the portfolio stood at $1.8 billion, up from $1.5 billion a year earlier. At 5.2% of the total Fund, the private equity portfolio has scope for growth and is well positioned for investment opportunities of all sizes.
- Finally, HOOPP finished the year with 54.9% of its assets invested in fixed income. Looking ahead, the Asset Liability Management (ALM) strategy will see a marginal increase
of fixed income at HOOPP, allowing increased exposure without diminishing other exposures within the Fund. HOOPP’s universe bond portfolio, reported a return of 9.54%, while its long bond portfolio returned 17.35%. The corporate credit portfolio was up 1.71%.
I discussed another crucial point with Jim Keohane, how HOOPP focuses on managing its downside risk. As he told me "if you lose 20% one year and gain 30% the following year, you're still down" (a fact often obfuscated by pension funds that mix new contributions with investment gains). He told me the 60/40 stock/bond "shotgun" approach takes too much risk which is why they use derivatives to manage and isolate certain risks (see above).
As far as managing downside risk, it's worth noting that HOOPP was the best performing pension fund in 2008. I keep coming back to that comment because many pension fund managers completely neglected their fiduciary responsibility of capital preservation. You got to cap downside risk when managing pension assets, something that HOOPP started implementing after the tech meltdown where they went from over-funded status to underfunded status.
I will end by simply stating that HOOPP is one of the best DB plans in North America and among the best in the world. They don't get the media attention of Teachers' or OMERS but they should. It's a private DB plan so compensation isn't public but I know they do not get Teachers' style compensation (and if you look at their benchmarks, much tougher than those of Teachers'. In fact, their value added would have been almost twice as much if they used Teachers' benchmarks).
If you need proof that large DB plans can work successfully and that they're much better than DC plans, look no further than HOOPP. I just wish they were managing pensions for all healthcare workers in Canada so that my father, brother and friends could invest their retirement money with them. In fact, I think all pension plans should try to adopt HOOPP's approach and philosophy in managing retirement assets.
Finally, take the time to read HOOPP's 2010 Annual Report and watch a recent BNN interview with Jim Keohane I thank Jim, Martin and Andy for their input and will correct any mistakes in this comment if needed.
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Hellfire!
$1M pot pays 6% to pensioner, BUT still makes 6% average profit per year. In essence the pension costs the pension provider diddly squat. Even if the pension provider loses a real 2% every single year (for 20 years in a row, never been known?), it would take an awful long time to completely diminish the fund. Probably longer than the life expectancy of the retiree. Defined Benefit Pensions have a disadvantage 'cos they can't screw around with annuity rates (which by the way are at multi year lows at the moment), but for those that can...
Where the hell does all that money end up when you pop your clogs? That's the frickin' question.
btw, to keep economy innovative and changing, as it is want to do in this day and age, portable health care and reitirement pools make sense. People should not be stuck in a job for health care or pension...also, employers that are expanding in new fields, new geographic areas have a hard time getting employees to move, both employers and employees better off with portable benes. I don't care if it is one big govt pool like Soc Sec/Medicare or 5-10 competing non-profit orgs that provide national pools...whatever...it would be more efficient and portable, good for people, good for business, good for economy...and save employers have to worry about shopping medical stuff, 401k stuff etc...
I still don't get why we can't have the public/ or at least non-profit version of a pension trust fund for small employers, self-employed etc. Let people choose whether they want to be in it or not, so all the whiners that think they can do so much better with their limited fee-ridden 401k mutual fund options can keep them.
Why not have 5-10 big pension trust funds like HOOPP available to people...they don't even have to DB per se, but have some agreement of what they get out of it when folks retire. If maket/fund does not do well, benes can take a hit.
I like the idea of pools that pool risk and provide security to folks and keep admin cost low like Leo points out is completely feasible.
There are so many parasites skimming off of peoples 401ks..just look how many well-paid people get income off of 401ks in US. My employer is paying some one to limit our choices of mutual funds...brilliant,...when DBs were around for most everything, the admin costs were much lower.
Why is everything in the world get more efficient, squeezing out the middle man, while financial crap keeps breeding more middle men that make huge money?
The main problem will turn out to be the bailing out of such plans if they fall into the hole. In addition, but being government entities, you will always have to watch it like a hawk in case the politicians start dreaming up ways to invest these funds.
It is doable, but I am doubtful just how beneficial it turns out to be. I have asked Leo repeatedly if he supports the plans without the backstop of the taxpayer, and he has yet to answer me.
Leo my investments are up 148% this year, why would i let you manage my money?
Jesus man, the shameless ponzi speals are getting tiring.
And mine were up 80% over the last year as I tripled down on one solar position at the right time and got lucky. The key word there is LUCK. I don't pretend I'm the next Soros. Some of you idiots do not realize that you're just plain lucky. Performance means nothing to me; it's all about process. Sell your bullshit elsewhere. I've seen many ''hot'' hedge fund managers come and go with the same mentality. Doesn't impress me in the least. In fact, it shows me you're a terrible money manager.
I can hear ya now in 5 years Leo,
"but!but!but!
The squid said these investments were AAAA!
Leo I just moved my assets to JERSEY specifically cause i see you civil serpent trolls running out of your own money and coming after mine.
Good luck to ya. If you lose their though I would strongly suggest the "I didn't know what derivatives were" excuse isn;t gonna save you from the zombies.
Pensions really are a SCAM!
Let's say you did grow your pot to $1 Million. You may recieve from roughly 6% right down to 2%-3% depending on which options you choose ref: level, guaranteed, spouse, increasing pension, from a pot that still earns the pension provider 6% average for each year you're being paid a pension...so more or less a zero sum game for the provider, BUT when you and or your spouse die, whatever is in the pot is still there propping up government debt BIG TIME and whatever else the fund is invested in. None of the accrued wealth is passed on to your children, NONE!
I can't see that's a good deal, even if the payments into the scheme attract tax relief, because you have very little control over it, except for any tax-free lump sum that may be taken and none of the accrued wealth is passed on to your family. So why the hell save in that way?
If ultimately, the money's not going to you and yours, where does it go??????
umm, lots of people can chose an option for spouses to get something when they die...and why does it have to be scam, why not just give people a choice...we take this money and contribute to the pension plan for those that want guaranteed income alive..or your other folks, you can just have it set aside in a 401ks and do what you want with it.
I don't have kids, I just want some security in my old age, and having a million saved isn't gonna do that.
Leo, I suppose their is an exception to everything , but does not make for a trend, nor does overwhelming evidence make for cynicism. Not accepting overwhelming evidence is stubbornism ,more akin to cynisism .
So, if they don't play a zero sum game...WHERE DOES THE SURPLUS GO??????
All pension plans are subject to Goverment legislation (and tinkering every X years)... that should be a clue.
Leo: The best traders can make how many thousand percent every year? Yeah, I know a multi-billion fund has less opportunity to invest, due to its physical size etc etc, but in today's algo driven world, 14 or 15 percent is not exactly in the stratosphere.
Maybe the industry ought to directly employ thousands upon thousands of good traders and have them beavering away, utilising relatively small trading positions, so that there could be the necessary diversification? te he
Treemagnet:
I can understand your beef with defined benefit pensions for civil servants to some extent, but don't civil servants expressly give up better wages during their working lifetime, knowing that their retirement income will be better than average? No-one stays retired for more than 50 years, so I don't fully understand why pension plans pay out such paltry amounts. Also, annuity rates are higher than 2%, so I don't understand where that figure comes from. Hopefully, the $7 million cash pot you mention would still be making money most years, it's not as if the cash sum is ring-fenced, so as long as the 'fund' regularly performs better than inflation, that extra money goes where?
Into buying more government debt?
That's why I feel pensions are a total rip-off and it's why I feel they are the BIGGEST con trick that was ever dreamt up by politicians.
The 2% rate refers to the most (actuarily) you can remove from a pot of money designed to generate an income stream with no chance of running out. Most, not all, civil servants are actually paid better than the private sector - something that really gained momentum ironically during the Bush presidency (?!). Anyway, thats my take on it. Not everyone can work for the govt, join a union, etc. I think the final beef I have is that even if it fails and the PBGC steps in with 80% of "X", its once again the tax payer backstopping somebody else's retirement while they have to still prepare for their own. One party gets double the responsiblility and the other gets "just what I was promised - we had a contract" and all that rhetoric and b/s.
I saw a guy in Vegas once hit black 5 times in a row in roulette. So what, Leo? No one said a DB plan can't be run properly, only that the evidence is that they mostly can't be run that way. And, in any case, past performance is yada, yada, yada. Again, what happens if HOOPP suddenly suffers one of those -20% losses, and trying to dig it's way out, suddenly starts underperforming the market averages? Who bears the risk in this case?
Why can't all DB plans perform well? - cause over time its a zero sum game, at least during downturns...there must be winners and losers.
DB plans playing a zero sum game??? C'mon, this is pure nonsense!!
during downturns?, absolutely!!!!
In my simplistic mind this highlights the rip off in pension provision.
It makes an average 6% p.a. and yet it only pays out 3.3% of its curent assets to its pensioners. Either it's vastly overfunded or the pensioners deserve a little more. Presumably pensioners don't get to share in the record performance, BUT somehow, something tells me there should be a mechanism by which they could. Where does the (ever increasing?) surplus go?
I realise pensions have to be conservative and protect their assets for future pensioners, but this seems a little over the top.
i dont know why all the DB pensions just dont go to Vegas put it all on black, win and life is good, lose and the taxpayers are responsible for the loss
That some private DB managers deliver impressive returns isn't an argument for extending DB plans to all public workers. For one thing, private firms have a much greater incentive to be prudent with their investment decisions because their capital is ultimately on the line. Also, expecting all or even most DB managers to deliver above-average returns over the long term is unrealistic.
The bottom line is that under a public DB plan all the risk, by definition, is on the taxpayer. If it weren't such a ridiculously good deal for DB recipients, it wouldn't be defended so aggressively.
Besides, if delivering the kind of guaranteed returns you have in mind (without loosing one's shirt) is so do-able, how come the Fidelitys and PIMCOs of the world aren't offering DB products like this?
Mercury,
I don't agree that ''private firms have a much greater incentive to be prudent with their investment decisions because their capital is ultimately on the line''. After 2008, how can you say such a silly thing? The US taxpayers bailed out Wall Street, not public DB plans. You too are taking an ideological stance which completely ignores the facts. Are US DB plans in need of major reforms? Some definitely are. They need to look at plans like HOOPP and start asking themselves what are they doing right that we aren't doing?
-If a private firm's DB plan falls short on the investment front, they have to make up for it with other (their own) capital. How is that statement silly?
-There can't be that many DB plans left on Wall St. (Citi? Wachovia?) And whatever ones there were in 2008, it's beneficiaries probably would have done just fine in a bankruptcy. Way more Wall St. employees had significant retirement assets tied up in company stock (especially LEH). No bail-out there.
-When muni DB plans start to fail, of course the federal taxpayer will be there to bail them out.
I'm puzzled. this funds is heavily into derivatives - financial, equity, r/e. wtf? How are they not going to lose their ass when the stock market and r/e bubble in canada implodes? That's what I want to know.
HOOPP uses derivatives to manage risk. They're very well aware of a possible Canada bubble as they regularly read my blog. In fact, they were the first to bring this up to my attention a while ago. ;)
thanks Leo. do you know if goldman sachs helped them manage risk with derivatives?
Who cares about Goldman and others? I am talking about HOOPP and the INTELLIGENT way of using derivatives to MANAGE risk and ISOLATE away beta. Derivatives are NOT the problem. Stupid greedy idiots who misuse them are the problem.
Leo, 13% was not a big deal in 2010. I beat that for heavens sake! 2010 was like shooting ducks in a barrel. Look at your own chart. The ten-year return is 6%. Plug that number into HOOPP and you will see that the lines no longer cross.
DBs are dead Leo. You just haven't woken up to that reality yet.
Bruce,
Stop already! Look at HOOPP's 5 and 10-year performance in the chart I embedded as well as their performance during 2008, a year where most large DB plans lost 20% or more. You just can't admit that some DB plans are successful and FULLY funded. Wake up, stop with your "DBs are dead" tirade. You're taking an ideological stance which isn't based on facts and isn't in the best interest of workers or the economy. Stop already, you're so out to lunch on DB plans, it's annoying.
Leo, Bruce is correct, DB plans are dead.
Your point of view is that some DB plans work. What is left unspoken is that the vast majority of these plans don't work. In an inflationary world the DB plan is the worst plan to have as you cannot capture proper inflationary increases. These are governed by political influences. Look at German experience in the 1920's.
Leo, you have become a caricature that posts for personal benefit. Clearly you come from a marketing background as there is little substance in your posts. You plug into the marketing talking points of the pension industry's vested interests and pump away.
Exactly. Leo just found a DB pension fund that was at the "top of the ponzi". Things are always good at the top of the ponzi. Hedge accordingly.
look as long as projected ror in the numerator and disc rate in the denominator are realistic (big 'as long as' if i know) there's no reason db pensions couldnt be workable
why not? pls clue me in the problem in db was using unrealistic %s remove that bit of chicanery and a db is no longer any diff from any other asset class cf projection which are used in 401ks no?
again pls pt out my defect in reasoning and i'll t/y for the smartener
Basically the returns are as abreviated as your spelling...
He didnt find it his boyfriend "martin biefer"(fucking canadiens) sent it to him like everything else he's ever posted. Constant sell...to no avail.
I'm amused reading the moronic comments from people who know NOTHING about me or managing pensions. Stick to your two-bit scalping, traders couldn't manage billions of a large DB plan if their life depending on it!
Conclusion: Socialism is good, you just need the right kind of bureaucrats to run it.
Therefore you should willingly support the loss of your freedom and making your doctor a State agent.
Freedom? You don't need no steenking freedom!
wish I, or my employer, could contribute to this pool rather than my 401k in US that is eaten up by fees and offers 14 similar mutual funds to buy. I work for a small company, as many people do, how great would it be for my employer to say, hey, we are a small company but we contribute to X DB and you will get good DB when you retire just like so and so that works for big corp of Fed govt. Instead, we have this neat rebalancing tool on our investment companies website.
what really gets me is how beneficiaries of DB plans look at their pension stream as though its not really good enough. nobody ever thinks about the pile of cash required to allow a GUARANTEED income stream PLUS cola's, medical, dental, vision, prescriptions, etc. So somebody making 90 percent of their last check making $150,000 gets (in year, just pension pay alone mind you) $135,000/yr. That would require about (in year one - its gotta grow too) about $7,000,000 to guarantee over any condition that its obligation can be met. Thats the real, impossible world non DB, non-govt workers face - and its impossible. Thats about a 2 % withdrawl rate. And that just sucks the hope from most and just sucks.
so true, they just look at their income lower than they were working, never consider the value...it is really that people with DBs are getting what everyone got 30 years ago, I grew up in a white working class neighborhood where everyone worked in factories for 3M, Whirlpool, Hamms Brewery, etc.. the line workers and the engineers and the management weren't that different in compensation, there were lots of dads with less than a HS education who had 2-3 kids, mom stayed at home, house was paid for and some dads retired before kids went to college! The had a decent house, in a decent neighborhood, health care, vacation and sick time etc. So back in the day, everyone got what only the best public work DBs get now. But now all those nice middle class secure jobs whether you were management or worker are gone...the last place to get a decent middle class job without a bunch of education is for govt, and even if you have bunch of education, middle class can elude you via paying down student loans, home equity being wiped out.
The real killer is what has happened to interest rates. I looked at an old piece of retirement propaganda from mid 90s from my employer 401k investment folks, it said if I continued contributing at the rate I was, I would have an income stream of $6000/month when I retire. Huh! Hardly! Even considering I went conservative in August 2008 and missed the worst of crash and got back in and out at bit on up swing (I was younger and all in during tech crash). As you say I would have had to saved and invested like genious to the tune of millions to generate anything like the old DB a guy in my old neighborhood got after 25-30 years in a factory.
I have a degree, I'm an engineer, I have been gainfully employed from age 22 on and I will be working til I'm 70 no doubt and will be getting nowhere near 6000/month when I retire.
Too bad the same can't be said for the services delivered by the unions that HOOPP represents, but it is comforting to know that the Nurse Kratchet will retire in comfort:
Wait Times for an MRI Diagnostic Scan within 100km radius of Toronto
Wait Times within a 100km radius of Toronto for ByPass Surgery
Average Time Spent in the ER within a 100km radius of Toronto
Procedure for getting a family doctor in Ontario
Wait times for hip replacement (not including the months of wait time just to see an orthopedic doctor)
Average wait time for selected Cancer treatments (after the wait time for diagnosis) within a 100km radius of Toronto
Head & Neck Cancer
Breast Cancer
Lung Cancer
footnote: One positive of healthcare in Ontario is that if you are suffering from a catastrophic illness e.g. heart attack or stroke and it's on a weekday, the treatment will be second to none but woe to the person who has symptoms that require a scan and who doesn't have the resources to get to the US
Just don't have a heart attack while shoveling snow, you'll die in the ambulance being shuttled from one hospital to another as they turn people away. From news reports while visiting the Toronto area a few years ago.