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Pension Gap Creating Tension?
Before discussing my latest topic, I want to bring something to your attention. Frederic Bettan, Managing Partner & CEO of Swing Capital contacted me to include their fund in my post on Quebec's Absolute Return Fund.
Along with his partner, Michel Nahmany, they claim to run one of the
largest F/X programs in Quebec (and maybe Canada). I edited my comment
and will add more funds that I missed (just contact me).
There is a lot of alpha talent in Quebec but the problem is capital is
scarce and forget seeding funds. We need more families like the Bass
family in the US to come up here and take a gamble on our alpha talent. I
would put some of our guys up with the best and brightest in New York
and London. Why are they living in Montreal instead of these big
financial centers? Because the quality of life is better here, not to
mention that we have some of the prettiest women in North America (you
notice them right away when the weather warms up!).
On Monday, I
had lunch with one of the best Canadian convertible bond arbitrage managers
in Canada, Marc Amirault, President and CIO of Crystalline Management Inc.,
a fund that has delivered high risk-adjusted returns. What I like about
Marc is that what you see is what you get. He lost weight, quit smoking
(excellent decision!), and looked a lot better than the last time I saw
him. He's a very experienced manager who is a straight shooter and
takes care of his clients.
I respect a guy like Marc who has made
it in Quebec a lot more than anyone of those hot shot hedge fund
managers in New York or London. If you can make it in Montreal, you can
literally make it anywhere. What I like about him is his background. He
worked many years at the Caisse de dépôt et placement du Québec,
so he understands the ins and outs of pension funds. He had to claw his
way to success when he ventured off on his own. Nobody handed him a big
fat cheque with no strings attached.
And when it comes to
convertible bond arbitrage in the Canadian market, very few managers have his
experience or track record. He told me all about 2008, "a tough year,"
and how crazy the US contagion got up here. "At one point there was no
market for Canadian corporate bonds. Barrick Gold bonds -- A rated --
were trading 15% above US Treasuries" (crazy!) . Some of his fund of
funds clients redeemed but his pension fund clients stuck by him, and
his fund recovered nicely.
I told him if I were a hedge fund, I would try to avoid fund of funds as
much as possible, especially the hot money out of Switzerland and
Middle East, and stick with patient capital like pension funds. Most
fund of funds redeem at the first sign of trouble. And unlike the US, a
fund in Quebec can't just put up a gate to stop redemptions (that's kiss
of death up here). I also told him that some of the best hedge funds in
the world got whacked hard in 2008, including Citadel. Back then many
investors were redeeming from Citadel and I told people on my blog to
jump on the opportunity to get into that elite hedge fund (those who
took my advice made great returns).
Crystalline Management Inc.
has some capacity left. The fund is small and Marc will cap the
convertible arbitrage strategy at a certain size. As he told me, "I'm
not into the asset gathering game, focusing all my attention on
performance, and I don't like how a lot of the pension consultants
operate, full of conflicts of interest"(tell me about it!). If you're a
small or large pension fund, I urge you to contact Marc directly
(mamirault@arbitrage-canada.com) and meet with him and his team. An
investment in a fund like his can pay off in many ways because you won't
just be getting high risk-adjusted returns, you'll be investing in an
experienced manager in a niche market who understands the importance of process over performance
(not all convertible arbitrage funds are the same, some use a lot more
leverage than others!). Just the knowledge leverage he and his team can
offer you is worth the investment and he's thinking of branching out to
more liquid strategies so he can become a top performing multi-strategy
fund.
Now, let me get to my latest topic. Bill Tufts of Fair Pensions For All brought to my attention a recent Stats Canada study. He wrote an op-ed in Digital Journal, Pension gap creating tension between haves and have-nots:
Statscan released a report today on the status of pension plans in Canada. Most Canadians do not have a pension plan while government workers do. Now more government workers have pension plans that private sector employees.In its report Statscan shows that pension plan membership in the private sector is falling and that most public sector employee have access to gold-plated plans. Membership fell 2.1% in the private sector as more employees were dropped from plans and the public sector on a hiring spree increased the number of employees on it's plans.
The
recent troubles in the economy have forced more and more companies to
reevaluate the viability of pension plans. Many companies have either
changed plans to defined contribution, frozen plans to new members or
closed their pension plans completely.A defined
benefit pension plans is one where the company or taxpayer guarantees
an income for the employee in retirement. This contrasts with the
defined contribution plan where the employees can only draw income
against the funds that have accumulated inside the pension plan.The Labour Force Survey
done by Statscan shows employment numbers at the end of 2009. The
pension plan membership numbers were also as of the end of 2009. At that
time there were 3.4 million public sector employees and 10.6 million
private sector employees. Those with defined benefit pension plans
included 2.8 million public sector employees (82%) and 1.7 million
private sector employees (16%).The private sector has suffered
hardship over the past three years but the public sector has remained
unscathed. There has not been much discussion around the disparity
between public sector employees with gold-plated pension and private
sector with much lower coverage.Earlier this year the LA Times wrote an article called The pension haves vs. the have-nots.
The article asked "Can the substantial disparity between public and
private sector retirement benefits be sustained much longer? We think
that it probably cannot". It cannot be sustained financially or
politically.There is the implicit promise in defined benefit
pensions that the employer or taxpayer will make good for any pension
shortfalls and will be responsible for guaranteeing the income stream
promised to the employees in retirement. Governments at all levels are
starting to face serious challenges from pension shortfalls. Although
the public sector pensions have been trying to suggest that the fall in
stock markets was the main reason for the pension shortfalls, this is
only a small part of the problem.The number one determinant of
rising pension costs is skyrocketing wages. We saw this when Ontario
Teacher's Pension Plan reported it's performance for 2010, a record year for investment performance,
yet the pension shortfall grew even bigger. The same story is
happening across Canada in municipalities, universities and other
government organizations.
An irritant
for taxpayers is the fact that government are depositing ever
increasing amounts of tax dollars into the public sector plans in order
to shore them up. The report from Statscan shows the numbers.
Total
employer and employee contributions to RPPs in 2009 amounted to a
record high of $53.4 billion. Employers contributed 71% of the total,
up from 67% in 2008.About 33% of the employer contributions,
roughly $12.6 billion, were for unfunded liabilities, more than twice
the amount in 2008.Statscan does not show if the
shortfalls were paid into public sector plans or private sector ones.
We do know the $12.6 million for shortfalls was paid into defined
benefit plans because defined contribution plans cannot have an
unfunded liability. This means that just the unfunded liability
contributions averaged over $2,700 per employee. On top of that there
was the additional $40.8 billion paid into these plans, the major
portion of it by the employer.Last
year over 60% of Canadians did not make a contribution into their RRSP
account, the largest majority stated a lack of funds was the major
reason for not making a contribution. That did not stop them however,
from contributing heftily to the pension plans of their neighbors in the
public sector. Ever increasing portions of taxes are going into these
plans.In 2009 the total RRSP contributions for all Canadians were $33.0 billion down from $33.3 in 2008.
I thank Bill for sharing his thoughts with me but I take issue with some
of his points above. First and foremost, the number one determinant of
rising pension costs is not skyrocketing wages but historically low
interest rates (read my comment on Ontario Teachers' 2010 results). Second, the main reason that Canadians aren't tucking away more savings is that household debt is hitting record highs as the Canada bubble inflates fueled by Canada's mortgage monster.
Third, pensions aren't free for public sector workers -- they pay up to
8% of their salary for their pension benefits and because of this
they're limited in what they can put in an RRSP.
of his points above. First and foremost, the number one determinant of
rising pension costs is not skyrocketing wages but historically low
interest rates (read my comment on Ontario Teachers' 2010 results). Second, the main reason that Canadians aren't tucking away more savings is that household debt is hitting record highs as the Canada bubble inflates fueled by Canada's mortgage monster.
Third, pensions aren't free for public sector workers -- they pay up to
8% of their salary for their pension benefits and because of this
they're limited in what they can put in an RRSP.
But
I do agree with Bill that pensions apartheid between the public and
private sector is going to be a major political issue of the future. I
think the Conservatives should increase the retirement age to 67 and
scrap early retirement altogether. They should also introduce an
increase in the contribution rate and cuts in benefits.
If
federal government employees don't like it, tough luck! I'm currently
working on contract for a federal government department and have no
benefits whatsoever. Moreover, there is a stupid rule that the unions
implemented that limits contracts to 90 days per calendar year, so even
if I wanted to work longer, I can't. Apparently this is done to protect
workers and prevent abuse from the federal government but the bottom
line is that it prevents people like me who like working on contract
from working longer than 90 days per calendar year.
Finally, last Friday I discussed the $30 billion pension surplus fight continues.
Please go back to that comment and see the addendum which includes
feedback from Bernard Dussault, the former Chief Actuary of Canada and
Jim Murta of Murta's actuarial blog.
»
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Certainly got it right about all those hot Quebec women. Never seen so many peaches-and-cream complexions in my life. Still hot well into their 40s.
re mistermousepotato
I would like to agree with you.
I dont live in the US, I live in an ex-english govt prison camp. My fahter worked for the govt as a servant, he was intellectually brilliant, still alive at 95 driving, self funded on a pittance and farming. He did not get to wear shoes to school in the snow. He earned buggerall and rose to second top in the state and worked everyday of his employment to his retirement except for 3 days off for funeral of parent and parent inlaws. He went out firefighting to save our forests for 6 days at a time with the other men, no sleep, knapsack spray on back and and beating out spot fires with a potato bag, patrolling and falling over every 30 steps at the end... and paid buggerall, like a primary teacher whilst building roads, setting up forests, in charge of thousands of men and saving the national govt a fortune. Sure he is remembered in his profession with a cult following of much younger men many years later, got a pension and its pitiably small, he changes his slippers from one foot ot another at 95, now subsistence farming, no help from the govt, no discounts in medical costs or specialparking. fuckall. And he did this for the country, he wanted to keep our forests, and at the same time provide trees efficiently and conservationally for housing for people.
My niece, 5 foot 6 with wrists and an inch across, single parented, not fed properly, worked 3 part time (35 hrs per week) jobs whilst doing her PhD in Environmental Science to look after the small animals as per her decision at age 3, works for the Govt, represents our country overseas, runs a major dept and keeps as a minor folly track of every toxic repository in the country, works all hours god made for fuckall.
So in your country, land of the free, public servants are useless parasites. maybe.
Not in mine. My father still quickly works out on the back of an envelope what the banks are making from every 0.25 interest hike and agonises how people can survive..
So stuff you, some of the world servants have ethics and work for the greater good of you parasites and the non humans living on the planet.
Keeping the bastards honest
That's funny - I think of Montreal and I think of faux Europeans, whores, drugs, and unusually young homeless people.
Only funny thing is your ZH pseudonym and pic. Is that you in the pic? Figures..
He lost weight, quit smoking (excellent decision!), and looked a lot better than the last time I saw him.
the oldest recorded person in the world is Madam Jean Claument of Ayrles in France who died at the ripe old age of 131. She did everything the Govt health fascists tell us not to do.
She smoked, she had a big sweet tooth, ate the local rich fatty French stews and downed port and the local cheap red wine pretty much every day. At age 113 her Doctor advised her to quit smoking and give up the booze. She did neither: an 'excellent decision' on her part
Leo Kockupalot wouldn't know an excellent decision if it smacked him in the nose (which is how reality usually appears onto him!)
Pensions are like Social Security; a present reality in money out of the paycheck but a future fantasy.
If the money is spent and not invested, or only 60% of what is needed is collected based on unrealistic returns then we all may as well chase Leprechuans and rainbows.
If every single person who paid out of their weekly toil for 30-50 years lived to collect their pension or S.S. and had the energy of a 25 year old the funds would be there or every lampost would have a banker, a politician, and a pension manager hanging from it.
As it is, most die before they can collect a pension, and even if they make it that far they certainly don't have the energy to hang any malfeasant young criminals of the "banking" and "finance" world who have bled it out or simply stolen it.
Pensions are promises, unfortunately.
Promises? Who's "we," Kemosabe? I never promised anything. In fact, I have argued bitterly against all such "promises" since at least 1988. To the point of being shunned by friends and family. And now, all of a sudden, 'unexpectedly', a quarter of a century later, "we" have a problem? They procured their "promises" through bribery and fraud. Fuck 'em.
And not through pay-check contribution??? A part of their real earnings went to build that pension nest egg. One can argue about the rate of return on that investment over time. But it was real money paid to the pension fund out of real salaries over time. Immediate consumption potential deferred as future rent potential...perfectly compatible with the capital forming paradigm our society is built on. Not immoral to get a return and certainly not JUST a vain PROMISE. If you JUNK this mechanism you junk capitalism as well!
That is the problem, capitalism has already been junked.
Bailouts are not capitalism.
The FED is not capitalism.
Etcetera, etcetera, etcetera.
The last step in the death of the illusion of capitalism is the millions upon millions of senior citizens - supposed retirees - having those promises and entitlemnent they paid into for 40+ years denied or drastically cut.
It is little different than working for 30 years to pay off your house then the bank saying you need to pay more and the city saying you don't own it or have to pay taxes equal to a mortgage payment when you bought it.
We are sheep who have been herded, corraled, tagged, shorn, and now will be slowly bled to feed the leeches and vampire squid.
"And not through pay-check contribution???"
Actually, no.
When I went to work for a particular private sector company it was an incentive to lure me into working for them. The money was set aside for me by the employer from their profits...an annuity is the most common holding vehicle for the funds, I contributed nothing into it. There was no line item on my W2 stating I was docked for it.
My salary was negotiated separately and the pension carrot had no bearing on what I was paid.
401k's are different. That is where the employee sets aside a portion of their earnings and the company matches up to a certain percentage. The employee has control over this account and invests as he or she sees fit into the government or private sector. This is what I think you are talking about.
The "funds" of federal pension plans are held outside of the market in non-tradable accounts...that is, they have no market risk. Only government default risk, as they grow only through the issuance of more debt, not profit, as the government doesn't do anything to make a profit and the tax base is not enough to sustain them now or anytime in the near future...in other words, it is vapor...see Tim Geithner's letter to Boehner posted on ZH last week as he explained (truthfully for the first time in his life probably) how they are "funded".
The simple fact is, we pay a portion of our labor to the government for it to function. It is a net loss to the economy as it must first come out of the private sector. Government employee wages & any benefits have to be funded through taxation or debt issuance...there is no other way.
Even if a portion of a government employees check were earmarked for retirement on their pay stub, that money had to come from somewhere...either taxes or debt issuance.
Regards.
The so called Cadillac plans will be subject to arbitration one day. Or an act of Congress will give public entities a gateway to bankruptcy.
Either way the GREED of the public sector is pau. Padding final year employment to peg pensions beyond quality is the first place to draw down the crooks (union leaderDICKS) in the public sector. Just because they aren't Squidly doesn't mean they aren't the problem.
Oh yeah. Solar still yields 35 horsepower per acre. Brilliant. Purely brilliant.
As far as 'bringing' money into the Great White North couldn't agree more. The Canadian elections have changed the landscape. The "safe haven" now you can get to without having your cock or pussy felt up by the molesters in Obama Debt Laden's frisk houses.
pensions
for those that didn't ...
buy the dip..
The problem is simple:
1. Public employees are grotesquely overpaid.
2. There are too many public employees. In the private sector, one would do the work of five or ten, maybe. (I live right next door to one of them. I KNOW what I'm talking about. He doesn't work. He doesn't freakin' work.)
3. Through bribery and fraud, they have procured salaries and benefits utterly disproportionate to their 'value'.
4. They exist to stifle productivity.
5. They exist to steal wealth from the private sector, middle class.
6. Every single one of them is a liar, a thief, and a fraud. This may perhaps sound a little harsh because, to some extent, I suppose something similar might be said about all of us. Still, the difference still seems one of quality and not merely degree, perhaps just because they are so over the top about it. I mean, "Traffic Technician II" (i.e. the fat chick who holds the stop sign on a pole?!? Give me a break.).
7. No one has represented the taxpayer in public employee negotiations.
8. This has been abetted by a malevolently dishonest media.
9. Every public employee has gamed the system to obtain the maximum benefit to themself. Pension spiking, baby. FTW.
10. And finally, except for the foregoing, they are utterly, totally, and completely incompetent. I, personally, know more about every aspect of computer technology from hardware to networking, security and programming - you name it - than the entirety of our local governement IT department. And I'm just a fucking lawyer. And not all that bright, frankly.
Individually, each is as bad as the worst on Wall Street. Collectively, I believe they may be worse because there are tens of millions of them. They are one of the enumerated reasons in the Declaration of Independence why the then existing form of government should be disbanded.
Low blood pressure? Orthostasis?: http://newportindy.com/2011/05/06/my-wrong-career-choice/
There is one last thing that is never talked about. I mean, the whole public employee salary, pension, benefits, usefulness thing is talked about in terms of its "sustainability." And while, yes, that may be what is triggering the debate de jour, but allow me to ask a hypothetical, please: Suppose that the current situation could go on without raising taxes, or 'cutting services', or bankrupting public entities, or whatever? Suppose that the system could go on and on as is, and let's just say that it would cost each of us, oh, say, ten bucks a year? No more. Just three cents a day for all of us. Even so, may I ask where is the essential justice in using the police power of the state (http://www.prisonplanet.com/swat-attacks-home-school-mom-for-refusing-to...) to extract money via the barrel of a gun from people who make, oh, say, $30k, to give to people who make many multiples of that (i.e., GM UAW workers, Federal employees, school teachers, and fucking life guards. LIFE GUARDS!?! [Read the above article.]) Where's the freakin' 'justice' in that? I don't care about the amount. On principle, it is just, plain, effin wrong. Oh, and the CalPers spokesreptiles just love to come out with crap about how "the average CalPers pension is just $30k," and stuff like that. Well, I could certainly live on that, but that sure isn't extravagant, eh? (Little Canadian there, for Leo.) But what they don't tell you is that includes the people who retired 50 years ago at age 51, too. Look at recent retiree numbers, and you will see: We are getting screwed!
+ 14 Trillion and counting.
You are so full of shit. My wife works for our state governmnet, is a CPA, has a MAcc and is not grossly overpaid. She and 1 other employee oversee a total budget process of 60 million. That means from contract, to close. This includes, budgeting, payments, acct reconciliation, billing, and has to be available to outside auditors. This would be handled by a team or 5-6 people making an hourly wage 25% more than she does.
Why would she do it? No tax hours from Jan-April. How would we know she is making less? She wourked in industry for almost 10 years before going to the public sector, and took the pay hit. But most poeple are like you. You think you should get something for nothing. Just because someone works for the government doesn't mean they should donate their time.
Since you know so much about everything related to your field, why don't you go work for the local government and make it a better place. Oh, I forgot you're just an asshole that likes to complain about everything. Collectively, you and your ilk "are the worse", because there are tens of millions of you, who sit and complain, bitch and moan, bitch and moan.
Even ZH has written articles about the unwind of TARP and other programs, that can't afford to hire employees because they can't pay them what the street is paying them. So fix it, donate your own time. Since you seem to be so competent, maybe you can solve all the problems by writting a less than pithy post on ZH. Suck balls or do somethng about to fix it!
I'll bet your wife left the CPA racket for the same reason I did. It's a fucking sweat shop. Compared to that teaching college, or any government job, is a damn cake walk. I've done both. I've seen both. People bitch and moan about government jobs but no one leaves, no one. Oh, and my hourly earnings tripled. The only one who lost was the ex-bitch, er wife;) Tough titties.
deleted dupe post
Hah-hah. A LAWYER crying about fairness of wages.
You lost. You thought you could rip people off endlessly
with the blithe "aristocratic" air of The Law behind you,
nnever producing a concrete thing in your whole life.
I worked for the state, took care of sick people, helped
keep the public safe ( work in prisons where snobs
like you NEVER go.)
And I got a pension. Through some miracle of fate,
someone got some money instead of a non-productive
parasite like a lawyer. Like you.