NYS Pension Fund Commits $2 Billion to Climate Transition Index

Link:https://www.osc.state.ny.us/press/releases/2021/12/nys-pension-fund-commits-2-billion-climate-transition-index?utm_source=weekly%20news&utm_medium=email&utm_term=climate%20transition%20index&utm_content=20211212&utm_campaign=pension%20fund&section=feature

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The New York State Common Retirement Fund (Fund) will invest $2 billion in an index focused on reducing the risks of climate change and capitalizing on the opportunities arising from the transition to a low-carbon economy, State Comptroller Thomas P. DiNapoli, trustee of the fund, announced today. This is part of the Comptroller’s Climate Action Plan announced in 2019 and his goal for the Fund of net-zero greenhouse gas emissions by 2040.

The Fund will allocate $2 billion within its internally managed public equity portfolio to FTSE Russell’s Russell 1000 TPI Climate Transition Index (CTI) in connection with the Fund’s Sustainable Investment & Climate Solutions (SICS) program.

Author(s): Thomas DiNapoli

Publication Date: 9 Dec 2021

Publication Site: Office of the NY State Comptroller

GSI REPORT: TOWARD A FISCALLY SUSTAINABLE NEW JERSEY: ANALYSIS & RECOMMENDATIONS

Link: https://www.gardenstateinitiative.org/updates/sustainability

Full report: https://static1.squarespace.com/static/5956385fe4fcb5606a4d46ac/t/613f51e3dae757528286a93a/1631539687957/GS-1438_Fiscally_Sustainable_Final_01.pdf

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NJ’s revenue is being produced by higher rates on a smaller tax base: New Jersey needs to ensure that the outmigration of high-income residents does not continue. Between 2008 and 2017, New Jersey experienced growth in the number of tax filers of 4.2%; however, growth in those making $500,000 or more annually was only 2.5% during the same time.

NJ’s public spending is growing faster than inflation, our population or job creation:  Our state will continue to see specific needs increase, especially in public health, health insurance, and public safety. New Jersey already taxes residents and businesses more than most other states. The problem is not too little revenue; rather, it is that the state’s spending is growing at a faster pace than inflation and the state’s population

The cost of NJ’s public workforce retirement and healthcare is the key driver of escalating spending and taxes: What New Jersey owes employees and retirees is growing significantly faster than the underlying economy that must support this liability. This is not sustainable. Pension liabilities are growing faster than assets

Author(s): Thad Calabrese, Thomas Healey

Publication Date: 22 Sept 2021

Publication Site: Garden State Initiative

Discussion of “The Sustainability of State and Local Government Pensions: A Public Finance Approach” by Lenney, Lutz, Scheule, and Sheiner (LLSS)

Link: https://www.brookings.edu/wp-content/uploads/2021/03/1c_Rauh.pdf

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Main Comments
• Stabilization goal is reasonable to consider
• However, public sector’s approach to funding with risk assets creates
additional issues for this type of debt (unfunded pension liabilities)
relative to government bonds
• Instability due to market risk isn’t in the model, because the model is
deterministic: no distribution of possible outcomes
➢ Higher expected return you target, the greater the distribution of outcomes
• Only meaningful scenario is r=d=0% → fiscal adjustment is 14.9% of
payroll vs. current 29%. So a 51% increase.
➢ I will provide some reasons I think this might still be too low

Author(s): Joshua Rauh

Publication Date: 25 March 2021

Publication Site: Brookings

The sustainability of state and local government pensions: A public finance approach

Link: https://www.brookings.edu/bpea-articles/the-sustainability-of-state-and-local-government-pensions-a-public-finance-approach/

Conference draft: https://www.brookings.edu/wp-content/uploads/2021/03/BPEASP21_Lenney-et-al_conf-draft_updated_3.24.21.pdf

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“Given other demands, fully funding their pension plans might not be the right thing for state and local governments,” Sheiner said in an interview with The Brookings Institution. “They should compare the benefits of upping their pension investments with the benefits of investing in their people.”

Most research evaluates state and local pension plans on the assumption they should be fully funded—that is, their assets are sufficient to meet all anticipated obligations to current and future retirees. State and local pension plans, benefiting more than 11 million retirees, hold nearly $5 trillion in assets and, according to a recent estimate cited in the paper, would require an additional $4 trillion to meet all of their obligations.

However, in The sustainability of state and local government pensions: A public finance approach, the authors observe that, using the types of calculations that economists recommend, state and local pension plans have never been fully funded—meaning that they have always been implicitly in debt. Furthermore, they show that being able to pay benefits in perpetuity doesn’t require full funding. If plans contribute enough to stabilize their pension debt, that is enough to enable them to make benefit payments over the long run.

Author(s): Jamie Lenney, Byron Lutz, Finn Schüle, Louise Sheiner

Publication Date: 24 March 2021

Publication Site: Brookings

The Sustainability of State and Local Government Pensions: A Public Finance Approach

Link: https://www.brookings.edu/wp-content/uploads/2021/03/BPEASP21_Lenney-et-al_conf-draft_updated_3.24.21.pdf

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In this paper we explore the fiscal sustainability of U.S. state and local government pensions plans.
Specifically, we examine if under current benefit and funding policies state and local pension plans
will ever become insolvent, and, if so, when. We then examine the fiscal cost of stabilizing pension
debt as a share of the economy and examine the cost associated with delaying such stabilization
into the future. We find that, despite the projected increase in the ratio of beneficiaries to workers
as a result of population aging, state and local government pension benefit payments as a share of
the economy are currently near their peak and will eventually decline significantly. This previously
undocumented pattern reflects the significant reforms enacted by many plans which lower benefits
for new hires and cost-of-living adjustments often set beneath the expected pace of inflation.
Under low or moderate asset return assumptions, we find that few plans are likely to exhaust their
assets over the next few decades. Nonetheless, under these asset returns plans are currently not
sustainable as pension debt is set to rise indefinitely; plans will therefore need to take action to
reach sustainability. But the required fiscal adjustments are generally moderate in size and in all
cases are substantially lower than the adjustments required under the typical full prefunding
benchmark. We also find generally modest returns, if any, to starting this stabilization process
now versus a decade in the future. Of course, there is significant heterogeneity with some plans
requiring very large increases to stabilize their pension debt.

Author(s): Jamie Lenney, Bank of England
Byron Lutz, Federal Reserve Board of Governors
Finn Schüle, Brown University
Louise Sheiner, Brookings Institution

Publication Date: 25 March 2021

Publication Site: Brookings

NY State Pension Commits to $400 Million in Sustainable Investments

Link: https://www.ai-cio.com/news/ny-state-pension-commits-400-million-sustainable-investments/

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The $247.7 billion New York State Common Retirement Fund has committed approximately $400 million to two funds as part of its Sustainable Investments and Climate Solutions (SICS) Program.

The commitments are part of New York State Comptroller Thomas DiNapoli’s climate action plan to lower investment risks from climate change and help shift the pension fund to net-zero greenhouse gas emissions within the next 20 years.

Author(s): Michael Katz

Publication Date: 26 April 2021

Publication Site: ai-CIO

The sustainability of state and local government pensions: A public finance approach

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Their findings, however, imply that many state and local governments may be able to spend more than assumed on improving their educational systems and economically important infrastructure.

“Given other demands, fully funding their pension plans might not be the right thing for state and local governments,” Sheiner said in an interview with The Brookings Institution. “They should compare the benefits of upping their pension investments with the benefits of investing in their people.”

Author(s): Jamie Lenney, Byron Lutz, Finn Schüle, Louise Sheiner

Publication Date: 24 March 2021

Publication Site: Brookings

How Biden’s ‘Donut Hole’ Plan Could Undermine Social Security

Link: https://www.thinkadvisor.com/2021/02/17/how-bidens-donut-hole-plan-could-undermine-social-security/

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But Richard Johnson, director of the Urban Institute’s Program on Retirement Policy, argues that he has a better idea — one that would generate more tax revenue for Social Security benefits without creating a donut hole, he tells ThinkAdvisor in an interview.

“Increase the $142,800 tax max to something like $250,000 today and continue to raise it [based on] average earnings growth,” he recommends.

Part of Johnson’s reasoning is rooted in the presumption that if Social Security were to be perceived as only for low-income earners, political support for the crucial program would be diminished.

Author(s): Jane Wollman Rusoff

Publication Date:

Publication Site: Think Advisor

CalSTRS Aims for New $2 Billion Sustainable Portfolio

Link: https://www.ai-cio.com/news/calstrs-aims-new-2-billion-sustainable-portfolio/

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The California State Teachers’ Retirement System (CalSTRS) plans to build a private markets sustainable investment portfolio to go greener while aiming to maintain its investment returns.

The investment committee of the $282.5 billion pension system, the largest teachers’ retirement fund in the world, is expected to approve the new portfolio at its meetings next week. 

The pension system’s plan calls for investments of $1 billion to $2 billion in the next couple of years—much of it in real estate affordable housing investments, as well as in private equity and infrastructure—according to CalSTRS investment committee material. 

Author(s): Randy Diamond

Publication Date: 24 February 2021

Publication Site: ai-CIO