School districts nationwide warn that teacher layoffs are coming
Districts Warn of Deeper
Teacher Cuts
New York Times April 20, 2010
School districts around the country, forced to resort to drastic money-saving measures, are
warning hundreds of thousands of teachers that their jobs may be eliminated in June.
The districts have no choice, they say, because their usual sources of revenue — state money and local property
taxes — have been hit hard by the recession. In addition, federal stimulus money earmarked for education has been mostly used up this year.
As a result, the 2010-11 school term is shaping up as one of the most austere in the last half century. In addition
to teacher layoffs, districts are planning to close schools, cut programs, enlarge classes and shorten the school day, week
or year to save money.
“We are doing things and considering options I never
thought I’d have to consider,” said Peter C. Gorman, superintendent of the Charlotte-Mecklenburg schools in North
Carolina, who expects to cut 600 of the district’s 9,400 teachers this year, after laying off 120 last year. “This
may be our new economic reality.”
Districts in California have given pink
slips to 22,000 teachers. Illinois authorities are predicting 17,000 job cuts in the public schools. And New York has warned
nearly 15,000 teachers that their jobs could disappear in June.
Secretary of
Education Arne Duncan estimated that state budget cuts imperiled 100,000 to 300,000 public school jobs. In an interview on Monday, he said the
nation was flirting with “education catastrophe,” and urged Congress to approve additional stimulus funds to save
school jobs. “We absolutely see this as an emergency,” Mr. Duncan said.
Everywhere, school officials tend to overestimate the potential for layoffs at this time of year, to ensure that every
employee they might have to dismiss receives the required notifications.
Whether
the current estimates rise or fall will depend in part on labor negotiations under way in hundreds of districts, and on how
taxpayers vote on school levy proposals in many states and towns. But those adjustments will affect the likely layoff numbers
only at the margins.
Some of the deepest cuts are in Los Angeles, where Superintendent
Ramon C. Cortines sent notices to 5,200 of the district’s 80,000 employees last month, telling them that they were losing
their jobs.
“I’ve been superintendent in five major school districts, and had responsibility
for cuts for years — but not this magnitude, not this devastating,” Mr. Cortines said.
And there is no end in sight, he said. He cut his district’s $12 billion budget this school year by $1 billion,
has prepared $600 million in cuts for the term beginning in the fall and is looking ahead to a deficit for the following year
of $263 million.
“I don’t see this being over in the year 2014-15,”
Mr. Cortines added.
In the economic stimulus bill passed in February 2009, Congress
appropriated about $100 billion in emergency education financing. States spent much of that in the current fiscal year, saving
more than 342,000 school jobs, about 5.5 percent of all the positions in the nation’s 15,000 school systems, according
to a study by the Center on Reinventing Public Education at the University of Washington.
States will spend about $36 billion of the stimulus money in the next fiscal year, leaving
their budgets short by some $144 billion, according to the Center on Budget and Policy Priorities, a liberal-leaning research group.
About a quarter of all state spending goes to public schools,
said Jon Shure, a state fiscal expert at the center, so without new aid, the continuing job losses will add to the nation’s employment
woes.
Warning of an educational emergency, Senator Tom Harkin, Democrat of Iowa, proposed a $23 billion school bailout bill last Wednesday that would essentially provide more education
stimulus financing to stave off the looming wave of school layoffs.
“This
is not something we can fix in August,” said Mr. Harkin, chairman of the Senate education committee. “We have
to fix it now.”
Michael J. Petrilli, who served in the Education Department under President George W. Bush, predicted that the bill could attract significant support. But even if it is approved, Mr. Petrilli said, it would leave
an underlying problem unresolved.
“Is the federal government going to try to prop up
states and districts forever?” he said. “If not, we’re just kicking the can down the road. Eventually, districts
need to learn to live with less.”
Senior Democratic aides said that because
Mr. Harkin’s bill would add to the deficit, it was unlikely to pass.
A
survey by the American Association of School Administrators found that 9 of 10 superintendents expected to lay off school workers
for the fall, up from two of three superintendents last year. The survey also found that the percentage considering a four-day
school week had jumped to 13 percent, from 2 percent a year ago.
One of those
districts is Atwater-Cosmos-Grove City in Minnesota, which has asked the state to let it shorten the school week. The district’s
business manager, Dan Tait, called the measure “another tool in the toolbox” for reducing costs. “We’re
a district that’s spread across 340 square miles, so we spend an inordinate amount of money on transportation for our
812 students,” Mr. Tait said.
The current round of cuts is particularly wrenching, superintendents
said, because their financing was already cut to the bone last year. For example, Barbara Thompson, superintendent of the
Montgomery public schools in Alabama, said the state used to give her district $975 per student for supplies, technology and
library costs. “They cut it to zero,” Ms. Thompson said. “So they can’t cut it any more.”
Not all school systems are in trouble. State mineral revenues, for instance, have largely spared
Montana, North Dakota and Wyoming from serious belt-tightening.
But they are
the exceptions. In early April, the Flagstaff, Ariz., school district’s preliminary list of people who might not have
jobs next year included almost a third of its 1,500 employees — every art, music and physical education teacher, every
counselor and librarian, every teacher with three or fewer years in the district, and all temporary hires.
By the time reduction-in-force notices went out April 15, though, the number was trimmed to 223 teachers and 47 administrators.
And if Arizona voters approve a 1-cent sales tax next month, the cuts will be much less drastic.
In the U-46 district in Elgin, Ill., José M. Torres, the superintendent, said he also had to contend with a budgeting roller coaster this
spring. At this point, the only uncertainty is whether the district’s 53 schools in Chicago’s western suburbs
will feel “high pain or low pain,” Mr. Torres said.
Seeking to cut
at least $44 million from the district’s $400 million budget, Mr. Torres has eliminated early childhood classes for
100 children, cut middle school football, increased high school class sizes from 24 to 30 students, drained swimming pools
to save chlorine, and dismissed 1,000 employees, including 700 teachers.
“This
stuff really hurts,” Mr. Torres said. And what is worse, he said, “I think next year will be tougher than this
year.”
Editorial: “Shared sacrifice” proposal
to preserve sustainability of Minnesota teacher pensions is fair and should be passed
Editorial:
Sharing the pain of pension problem
Bill would increase contributions of state teachers, districts.
Minneapolis
Star-Tribune April 20, 2010
Many private sector pension plans have taken a beating in these difficult economic times. Some companies have slashed
current and future benefits, frozen employer contributions or dropped plans altogether, continuing a trend that started even
before the economic downturn.
With private sector workers shouldering a greater responsibility for retirement savings, it's
not asking too much for Minnesota teachers and school districts to pay a little more to keep their pension fund financially
healthy.
A legislative proposal to increase the contributions of school districts and teachers to the statewide
retirement fund merits passage. The plan is an equitable way to shore up the pension pot and keep it viable in the future.
Modifying the contributions now will ensure that retirement benefits will be available for the 77,000 educators who currently
pay into the plan and were promised a modest retirement income as a condition of employment.
Without increased
contributions, the fund is in trouble. As of last June, the Minnesota Teacher Retirement Association (TRA) had assets of about
$17.8 billion, while liabilities to current and future retirees totaled $23 billion, leaving a $5.2 billion gap.
Fund
managers project that without an infusion of new money, the fund will go broke by 2032. That would leave thousands of future
retirees without the income they had paid to support during their careers.
The major feature in the legislation
would increase both district and teacher contribution rates, which are currently 5.5 percent. Those rates would each rise
by 0.5 of a percentage point annually over a four-year period up to 7.5 percent. For the average working educator making about
$49,000 per year, that additional payment would be $172 in the first year and $686 in 2014. During the first year, the higher
contributions would raise $40 million to $42 million for the TRA fund -- half paid by teachers and the other half by school
districts.
In addition, the bill would temporarily freeze benefit increases for the 50,000 educators who now
receive pension checks. Under current law, retired teachers receive a 2.5 percent annual bump as a cost-of-living increase.
Retirees would not get that increase in 2011 and 2012, costing them about $700 per year. In 2013, the raise would be lowered
to 2 percent; when the fund is restored to at least a 90 percent level, the 2.5 percent would be reinstated.
Education
Minnesota officials have raised concerns about the bill but say their position is more nuanced than flat-out opposition. Tom
Dooher, president of the teachers union, said the organization is not necessarily opposed to raising pension contribution
rates of teachers, but it wants assurances that educators won't have to cover the entire pension shortfall if school districts
fail to provide additional funding.
Raising contributions and withholding increases spreads the financial pain among the active
teachers, school districts and retirees. And in future years, when the market and pension coffers are healthier, adjustments
could be made to decrease the contributions.
During the go-go years in the stock market, the teacher pension fund was fully funded between
1997 and 2004. Times were so good that fund operators were able to decrease employee and employer contribution levels. But
those rollbacks, combined with sharp market downturns after 9/11, in 2002, 2008 and 2009, depleted the fund.
The
shared sacrifice approach outlined in the proposed legislation is a fair way to keep an important public pension plan solvent.
Legislators should pass it to protect the current and future retirement incomes for tens of thousands of Minnesotans.
Missouri Senate approves pension reform bill that
also would establish new, separate investment function
Bill to reform
state retirement benefits advances
Springfield News-Leader April 21, 2010
Jefferson City -- A bill to reform state employee
retirement benefits took a step forward Tuesday in the face of mounting opposition from groups not directly affected by the
legislation. Shortly after the Senate passed the pension reform bill 27-5, the House retirement
committee held an informal hearing with the bill's sponsor, Sen. Jason Crowell.
Even though the bill does not affect local government or public school employees, there is a push by education
groups to kill the bill.
Former House Speaker Jim Kreider, now a lobbyist for
retired teachers, asked members of the House retirement committee to stop the legislation.
Crowell's bill has several controversial components:
-
Increasing the typical retirement age for new state workers hired after 2011 to 67 and requiring them to contribute 4 percent
of their salary. Current employees pay nothing toward their retirement.
-
Requiring 10 years of service to the state -- instead of the current five -- to vest and get a pension.
- Combining the investment arms of the two pension funds for state workers and forming the Missouri Public
Trust Co. to manage and invest the assets of the Missouri State Employees Retirement System (MOSERS) and the Missouri Department
of Not true, says Crowell.
The bill would establish a quasi-governmental company
with public employees to manage the investment of MOSERS and MPERS. The two funds would remain equal, but the state would
realize significant savings by cutting administrative redundancies, Crowell said.
The board of the proposed investment company would consist of directors of MOSERS and MPERS, the governor's Office
of Administration commissioner and four gubernatorial appointees confirmed by the Senate.
Under the bill, MOSERS and MPERS directors would submit a panel of potential board members to the governor,
who could reject the group and ask for others.
To prevent the new investment board
from becoming another landing pad for political cronyism, the bill would prohibit members of the General Assembly from serving
on the board or doing business with it for five years after leaving office. Another provision would allow other municipal
pension funds to turn over management of their assets to the new investment company. Springfield police and fire pension board
members have expressed interest in this aspect of the bill, saying it could save the troubled fund money by not having to
hire a private firm to invest a new 3/4-cent sales tax voters approved last fall to shore up the fund.
Differing
views
Crowell said his main motivation behind the bill is to save the state money in the coming budget
years when tax revenue is expected to remain flat. The reforms could save the state an estimated $34 million next year and
up to $300 million over the next 10 years, Crowell said.
State employee payroll makes up $2.2 billion of the state's
$23 billion overall budget, with nearly 58
percent of that sum going to fringe benefits, Crowell said. MOSERS
is 80 percent funded, while MPERS is 47 percent funded and considered to be in trouble and in need of better investment
strategies, Crowell said.
Gov. Jay Nixon supports changing future fringe benefits as part of an overall effort
"to make government more efficient and effective," spokesman Jack Cardetti said. "Our interest in this legislation
focuses mostly on modernizing the contribution system for newly hired state employees," Cardetti said.
Kreider
also claimed the legislation would allow lawmakers to eventually force the pension funds for teachers, school personnel
and local government employees into the proposed Missouri Public Trust Kreider, a Democrat from Nixa, and Crowell were political
adversaries when Kreider was House speaker from 2001 to 2002. Kreider now lives in
Springfield.
Crowell has
claimed Kreider's group is trying to kill the bill because it would allow the state auditor to
conduct performance
audits of PSRS, the teachers pension fund.
The bill also would allow the state auditor to pry open the books of
LAGERS and a retirement fund for prosecuting and circuit attorneys. This provision was added in response to LAGERS suing last
year to block State Auditor Susan Montee from conducting a full audit of the retirement fund's books and operations, Crowell
said.
Speaking on the Senate floor, Crowell said Kreider's attacks were "totally disingenuous. But what
else do you expect from Jim Kreider?"
Union in Nevada county proposes across-the-board pay cut to avoid layoffs
$145 MILLION
BUDGET SHORTFALL: Union proposes pay cut for all employees in Clark County School District
1.5 percent plan aimed at
avoiding layoffs
LAS VEGAS REVIEW-JOURNAL April 19, 2010
A 1.5 percent
pay cut by all 38,500 employees in the Clark County School District would prevent layoffs and resolve the budget crisis for
the 2010-11 school year, according to a proposal from the union representing school principals and administrators.
Stephen Augspurger,
executive director of the Clark County Association of School Administrators and Professional-technical Employees, is scheduled
to discuss the proposal at 9:30 a.m. today with Superintendent Walt Rulffes and Chief Financial Officer Jeff Weiler.
Rulffes did
not respond to an e-mail asking for comment but has said he does not like to negotiate in public.
The school district is facing
a budget shortfall of $145 million because of state funding cuts and declining income from property taxes.
District officials have announced
that they might have to cut as many as 1,077 jobs if concessions are not reached with its four unions representing principals,
school police, teachers and support staff.
Augspurger said his plan answers the superintendent's call for "shared sacrifice" by making
everyone take a minimal pay cut.
The resulting one-time savings of $28.7 million would plug a remaining budget hole that district officials
have not determined how to fill.
Some of the savings would come from mandating three unpaid furlough days a year.
Instruction time would not
be affected because teachers could take off their in-service days when school is not in session.
It was not clear Monday how
much employee support Augspurger has for his latest proposal. Mike Thomas, president of the Police Officers Association, and
Bo Yealy, president of the Education Support Employees Association, did not return calls seeking comment.
Ruben Murillo -- president
of the teachers union, the Clark County Education Association -- confirmed that he has seen the proposal but had no comment.
He said his union still is "headed toward arbitration."
"Everything is still fluid, in motion," Murillo said.
Augspurger
said he thinks employees are in support of a minimal pay cut.
"I believe that district employees from all bargaining groups
recognize the gravity of the current budget situation and are willing to do what is necessary to assist in the resolution
of this financial crisis," Augspurger said in an e-mail to the superintendent.
However, Augspurger believes "that CCSD
employees would like to resolve this issue without unnecessary delay so that the focus of every employee can return to providing
the best education possible to students."
Augspurger said it's obvious that the budget crisis won't be fixed without a salary cut. He said
there has to be a "sense of the urgency" to get the problem solved.
He also said he thinks all negotiations should
be done in a public forum for the sake of transparency and fairness.
Augspurger's proposal builds on the $117 million in cost savings
and program cuts that already have been identified for the fiscal year that begins July 1. These include the $40 million in
one-time savings from this year and $17.4 million from converting all or most 12-month schools to 9-month calendars, as well
as reduction of the textbook budget by $15.2 million.
It also keeps the expansion of class sizes in grades 1 through 3 that are projected to cut 540 teaching jobs
and save the district about $31 million.
Augspurger noted that district officials have referred to these job losses as "soft cuts" because
of the likelihood that the teachers would be able to find other classroom jobs in the system.
In keeping with earlier budgets
proposed by the district for 2010-11, salary increases based on experience and education would be preserved, but there would
not be a cost-of-living increase.
Augspurger also believes his proposal would solve one of the most contentious issues of the negotiations:
how to cover a half-percent increase in the cost of the contributions to the state pension plan, the Public Employee Retirement
System, or PERS.
For the current year, the teachers union got the district to cover its half-percent increase, but the other
three unions did not, Augspurger said.
Covering teachers' PERS increase is a liability of $9 million for this year and next year to the district's
general fund, Augspurger said. It would cost $4.4 million more to cover the same contribution for support staff, police and
administrators.
By state law, increases in contributions to PERS are supposed to be shared equally between the employer and
the employee.
Under the proposal, the district would pay for all employees' PERS increases by using part of the savings from the
1.5 percent salary reduction.
Because the PERS payment is coming from employee pay cuts, it would comply with the state law and restore
a sense of fairness to district employees, Augspurger said. "We get the same thing the teachers got," Augspurger
said.
Study finds state tax revenues
declined for fifth straight quarter, with no improvement in sight
State
Tax Revenues Decline for a Record Fifth Consecutive Quarter, Rockefeller Institute Reports
Fiscal recovery likely to take several years, suggesting lingering budget difficulties
Nelson A. Rockefeller Institute of Government April 16, 2010
Albany, N.Y. — State tax revenues continued to deteriorate
in the fourth quarter of 2009, marking a record fifth consecutive quarter of declining collections, according to a report
issued today by the Rockefeller Institute of Government.
“State fiscal recovery is likely to be long
and slow, presenting policymakers with several years of lingering difficulty in balancing budgets,” said Donald J. Boyd,
senior fellow at the Institute and co-author of the report.
Overall, state tax revenues
for the fourth quarter of 2009 dropped 4.2 percent from a year earlier and 8.6 percent from the same period two years earlier,
according to Rockefeller Institute research and Census Bureau data. Forty-one states reported total tax revenue declines during
the quarter, with seven states reporting double-digit declines. Nine states, led by New Hampshire and North Carolina, showed
improvement in revenues relative to a year earlier.
The data continue to show regional differences
in tax collections. Western states (especially those in the Southwest) and some Midwestern states (Michigan, Missouri and
Ohio in particular) have been hit harder by the downturn than most others.
Unlike the
last recession, the downturn in states’ tax revenues has resulted from sharp declines in both income tax and sales tax
collections. The last recession caused a similarly steep dip in income tax, but did not hit sales tax collections as dramatically.
In the most recent quarter, all major sources of state tax revenue fell from year-ago levels. The income tax was down by 4.6
percent, the sales tax was down by 5.3 percent and the corporate income tax declined by 3.6 percent.
While the decline in states’ tax collections is not as severe as in previous quarters, neither is it at an end,
according to Institute researchers. Preliminary figures for January and February for 45 early-reporting states show continued
weakness, with personal income tax collections dropping 7.1 percent and overall tax collections down 2.2 percent from a year
earlier.
“There is a strong risk that income-tax collections in April and May will fall relative to the already
weak levels of a year earlier,” Boyd said.
In contrast to state tax collections, local tax
revenue increased during the quarter, by 4.6 percent. It was mostly driven by strength in property taxes, which may not continue
through the coming year, according to Boyd.
“Property taxes in some areas are still being
calculated on peak housing prices,” Boyd said. “Collections in some locales could be hit hard when local governments
conduct revaluations.”
Over the past two decades, state tax revenues averaged annual, year-over-year
increases in the range of 5 to 5.5 percent. In normal times, the last two years might have been expected to produce an overall
revenue increase of 10 percent or more. Combined with the actual decline mentioned above, states have seen revenue drop by
more than 18 percent relative to what might otherwise have been expected.
Another way
to assess the current revenue picture is to adjust collections statistics for inflation and to remove seasonal variations,
according to the report. Using this measure, tax revenues are currently at roughly the same level as they were in both 2000
and 2004. In other words, state tax revenue, adjusted for inflation, is at about the same level as 10 years ago, although
the nation’s population has increased by approximately 10 percent during that period. Health care costs, a major driver
of state expenditures, have grown far faster than general price inflation.
Cindy Rougeou: Switching Louisiana
public employees to a DC plan won’t help
Letter: La. pension misinformation cited
Baton Rouge Advocate Apr 16, 2010 - Page: 8B
I would like to thank The Advocate
for its recent editorial recognizing the importance of securing the financial soundness of our public pensions.
The Louisiana State Employees’
Retirement System understands the significance of this matter and continues to stress, to the Legislature and the public,
the importance of paying down the unfunded accrued liability, or UAL.
I also appreciate the opportunity to clear up some misinformation that
has been published regarding the soundness of the system and the effect of various proposals to reduce the debt.
One very misleading report was recently
issued by the Kellogg School of Management. The report raised alarm by erroneously suggesting that the pension system would
run out of funds within 10 years. Unfortunately, the author based his projections on investment return rates of approximately
5 percent and ignored completely the amortization payments made to LASERS. In fact, through June 2009, we had a 25-year compounded
actuarial return of 8.41 percent. Our current fiscal year market rate of return is 20 percent. The report disregarded our
statutes, the Louisiana Constitution and market experience.
A Pew Center report focused on state retirement systems and potential reforms. It affirmed
that public pensions work and play an important role in enabling public employers to attract and retain qualified workers.
It should be noted that Louisiana took an important step in 1987, constitutionally requiring the financial soundness of state
pension systems. The Pew report recognized Louisiana as a top 10 state for paying the actuarially required rate.
In 2009, the Louisiana Legislature
revised the debt payment schedule, reducing the UAL by $500 million. Louisiana enacted sweeping reform in 2005 for LASERS
new rank-and-file members; the legislation reduced debt, increased employee contributions and minimum retirement age. The
legislation also reduced pension costs.
The Advocate editorial cited an opinion by House Speaker Jim Tucker. He has introduced a bill (HB930)
that would shift new state employees into a defined contribution plan instead of the current defined benefit plan. According
to the editorial, a change from a defined benefit plan to a defined contribution plan is designed “to bring the state
in line with the private sector, where IRA-type defined contribution systems are the norm.”
IRA-type plans are a norm in the private sector, but
so is Social Security. Too often forgotten is that state employees are not in Social Security. They do not have that form
of a defined benefit and are dependent on their LASERS pension.
In summary, the Louisiana State Employees’ Retirement System Board will continue
to work with our Legislature on debt reduction and improvements in our pension system reform. The board opposes HB930, seeing
no short-term fiscal savings, reduction of debt or definitive long-term savings.
Cindy Rougeou, executive director
Louisiana State
Employees’ Retirement System
North Carolina Retirement System posts results of governance
and investment practices review conducted by Ennis Knupp
Excerpts:
The purpose of this review was to complete an evaluation
of the governance and investment practices of the NCRS in order to provide the Treasurer with recommendations for improvement.
NCRS’ governance, operations and investment practices were compared to both common industry standards and best practices.
A “common industry standard” is a generally accepted way of doing business at other public funds. A “best
practice” is an experience-tested or emerging optimal practice.
…
OVERALL
CONCLUSION
After extensively examining the investment program of NCRS, we conclude
that it is fundamentally sound and follows many practices that fall inline with common practices of other large institutional
investors. We did, however, find room for enhancement in areas generally described as risk mitigation, transparency, organizational
effectiveness, accountability, ethics, and documentation. We were favorably impressed by the Treasurer and staff’s immediate
response to our recommendations throughout the review. By the time our review concluded, the NCDST had adopted numerous policies
and changes in its operations to conform to best practices.
We encourage NCDST to continue to address the remaining recommendations and either formally accept, modify,
or reject them based upon what is in the best interest of NCRS.
Access the full report here:
http://www.nctreasurer.com/NR/rdonlyres/25D52F88-C3F9-4853-915A-0CF4201B1AFE/0/2010419EnnisKnuppFullReport.pdf
Opinion: The question of who selected
what is the heart of the Goldman Sachs matter
Goldman’s Abacus Spin Dodges the Big Question
Jonathan Weil
April 19 (Bloomberg) -- Just how strong is the Securities and Exchange Commission’s lawsuit against
Goldman Sachs and a 31-year-old vice president who nicknamed himself Fabulous Fab? It depends on what the meaning of the word
“selected” is.
The critical misrepresentation Goldman made to investors in a deal called Abacus 2007-AC1 was
that the mortgage-bond portfolio to which Abacus was tied was “selected by ACA Management LLC,” the SEC said in
its complaint. Those are the words as they appeared in Goldman’s 2007 pitch book for the transaction and other sales
materials.
The SEC alleged that statement was false and misleading, and amounted to fraud. Goldman didn’t
tell investors that its client, the hedge fund Paulson & Co., played a significant role in ACA’s selection process.
Nor did it say Paulson planned to take a short position on the debt securities Abacus issued, a bet that ultimately would
make Paulson a $1 billion profit.
Does Paulson’s involvement mean it wasn’t entirely true that ACA selected the portfolio?
What’s intriguing about the statements Goldman and Paulson released last week is that they gave very different responses.
In its April 16 statement, Goldman said flatly that ACA “selected the portfolio.”
Note: Goldman didn’t say that Paulson didn’t select the portfolio -- only that ACA did. The bank tried to minimize
Paulson’s role by saying ACA did so “after a series of discussions, including with Paulson & Co, which were
entirely typical of these types of transactions.”
This makes it seem as if Paulson
were just one of multiple concerned parties offering its two cents. Goldman, which called the SEC’s accusations “unfounded in law and fact,” also described ACA as “an independent and experienced portfolio selection
agent,” without saying what it meant by independent.
‘Sole Authority’
Paulson, which wasn’t named as a defendant because the SEC said it didn’t make any misrepresentations,
didn’t venture quite so far. The fund, founded by John Paulson, said ACA “had sole authority over the selection of all collateral.” However, it didn’t say that ACA actually
selected the collateral. Nor did it say anything about ACA’s independence.
The question
of who selected what, and whether the answer may be different in substance than in form, would be one for a jury should the
SEC’s lawsuit ever get to trial. It might be years before the case makes it that far. Meantime, Goldman has a lot more
explaining to do if it wants the public to believe its side of the story. At stake is nothing less than its reputation.
For starters, the SEC cited an internal Goldman e-mail from March 2007 by Goldman vice president and co-defendant
Fabrice Tourre, in which he described the Abacus portfolio as having been “selected by ACA/Paulson.” This was an unfortunate
choice of words from Goldman’s point of view.
Paulson’s Request
The story, as told in the SEC’s lawsuit, begins in late 2006. Paulson had identified more than 100 subprime-mortgage
bonds it thought would soon default. It asked Goldman to structure a synthetic collateralized debt obligation whose value
would be tied to the performance of those bonds or others like them, so it could bet against them.
On Jan. 8, 2007, Tourre met with ACA and Paulson representatives at Paulson’s offices in New York, the SEC said.
Goldman the next day sent ACA an e-mail with the subject line “Paulson Portfolio” and a list of 123 mortgage bonds.
ACA e- mailed Tourre and others at Goldman two weeks later recommending 86 bonds, including 55 from the original list. The
subject line of that e-mail, too, said “Paulson Portfolio.”
Discussions continued,
including meetings between ACA and Paulson representatives in Jackson Hole, Wyoming, and at ACA’s New York offices. On Feb. 5, Paulson sent ACA and Tourre an e- mail, deleting eight bonds ACA
recommended, leaving the rest.
‘Looks Good’
An internal ACA e-mail that day
asked: “Attached is the revised portfolio that Paulson would like us to commit to -- all names are at the Baa2 level.
The final portfolio will have between 80 and these 92 names. Are ‘we’ ok to say yes on this portfolio?”
Another ACA employee responded, “Looks good to me.” A few weeks later, Paulson and ACA agreed on a portfolio tied
to 90 mortgage bonds, the SEC said.
So, who selected the portfolio? If the SEC’s
facts are right, it looks like Paulson and ACA both did.
One question for a jury would be
whether it was materially misleading for Goldman to omit Paulson’s name from its sales materials. While ACA may have
had the final say on paper, it needed Paulson’s approval. Goldman wouldn’t have done the Abacus offering if Paulson
hadn’t gotten what it wanted, because Paulson wouldn’t have shorted it, meaning no fee for Goldman. (Goldman said
it lost money on the transaction.)
Skeptical View
Perhaps
if ACA had known Paulson was picking bonds to short, it would have viewed the fund’s choices more skeptically and not
sold protection on $909 million of the Abacus notes, which all defaulted. The SEC claims Tourre and Goldman misled ACA into
believing it was taking a long position on Abacus’s equity portion. Goldman said it never represented that to ACA.
All this leads me to another curiosity. If ACA was truly independent, as Goldman said, and if ACA was the
one selecting the collateral, then what the heck was Paulson doing even being in the same room as ACA?
Surely there is an answer to that question. It just might not be a good one.
Jonathan
Weil is a Bloomberg News columnist. The opinions expressed are his own.
Annual study of corporate pensions
finds average expected investment return of 8.1% and improved funding condition
Milliman’s
annual study of corporate pension plans reveals a slightly improved funding picture and investment return assumptions holding
steady. The aggregate funding level of the 100 largest corporate plans measured in the study rose to 81.7 percent in 2009,
up from 79.4 percent in the previous year. The funds’ average expected rate of return held steady at 8.1 percent.
Access the report here:
http://www.milliman.com/expertise/employee-benefits/products-tools/pension-funding-study/pdfs/pension-funding-study.pdf
Study finds that delayed retirement among Americans may
improve condition of Social Security and Medicare
Delayed retirement among Americans may bolster future of Social Security and Medicare, study finds
April 7, 2010 www.esciencenews.com
An unprecedented upturn in the number of older Americans who delay retirement is likely to continue and even accelerate over the next two decades, a trend that should help ease the financial challenges facing
both Social Security and Medicare, according to a new RAND Corporation study. While government projections suggest the number
of older Americans who remain employed is likely to plateau over the coming decade, RAND researchers say a more likely scenario
is that the increase in delaying retirement that began in the late 1990s is likely to gain speed.
Because the trend holds broad benefits for the nation,
lawmakers may want to consider reforms that would dismantle barriers that discourage some older people from remaining employed
and even consider changes that would encourage employers to hire older workers.
"Changes in pensions, longer life expectancy, less disability
at older ages and more women in the workforce are all trends that are gaining momentum and are likely to cause more Americans
to delay retirement," said Julie Zissimopoulos, study co-author and an economist at RAND, a nonprofit research organization.
"Even without new policy changes to encourage the behavior, there are good reasons to conclude that the trend will be
propelled forward."
In a report published in the Journal of Economic Perspectives, RAND researchers examine a wide array of
evidence that suggests that delayed retirement or partial retirement are likely to increase and discuss the many ways that
the tectonic shift in work patterns may benefit the United States.
The nation's population is growing older as Baby Boomers reach retirement
age, leaving proportionately fewer people in the workforce to pay taxes and support the social programs that provide a safety
net to older Americans. Longer work lives for many Americans will help to ease that imbalance and the financial stress it
puts on Social Security and Medicare, according to researchers.
After more than a century of decline, the number of older American men and women in the
workforce began to rise modestly during the 1990s. While about 17 percent of Americans aged 65 to 75 were employed in 1990,
the proportion is expected to rise to 25 percent in 2010. A jump in employment among those aged 75 and older also has been
seen.
Despite the
steady increase in employment among older Americans, the federal Bureau of Labor Statistics predicts the trend will begin
to flatten this year for men aged 65 to 74 and by 2020 for men age 75 and older. The agency predicts a similar plateau for
women beginning in 2020.
But RAND researchers say the forces that are causing people to delay retirement or reenter the workforce are strong
enough to propel the current trend forward until at least 2030.
A principal reason why retirement rates have dropped is because of an evolution in the
skill composition of the nation's workforce, according to the study. As American workers have gained more education, they
have achieved jobs that are more fulfilling, they face fewer physical demands in the workplace and they are paid more for
their efforts.
Adding
to this phenomenon is the rise in the number of dual-earner families. Since couples tend to retire together and men often
are older than their spouse, men may stay in the work force longer to accommodate their wives' work lives, according to
the study.
While
there have been several changes made to Social Security that encourage people to work longer, researchers say those changes
appear to be a secondary force behind the trend observed thus far.
"More older Americans are extending their work lives both because they want more income
and because their improved health allows a longer work life," said report co-author Nicole Maestas, a RAND economist.
"Further encouraging longer work lives may prove beneficial to both individuals and the nation as a whole."
Additional incentives are on the horizon
that may fuel the future growth of the number of older Americans delaying retirement.
Changes to Social Security that delay full benefits
from age 65 to age 67 will not be fully in force until 2022, and there have been discussions about further extending the threshold
as well. In addition, as labor force participation among younger women has risen over time, women have become increasingly
likely to qualify for Social Security benefits on their own work record. As a result, women now more than ever face direct
incentives to extend their work lives in order to qualify for higher benefits.
In addition, as people live longer more Americans may need
to extend their work lives to accumulate wealth to provide for their needs during old age.
Researchers say that lawmakers may want to consider
policies that would further aid older Americans who want to delay retirement. Such measures include eliminating measures in
some pension plans that penalize recipients who continue working and improving the public's understanding of retirement
and pension rules.
"We
should consider removing the disincentives to delaying retirement and let people make the decision about whether they want
to remain in the work force or not," Zissimopoulos said.
