Compliance July 5, 2006

Alaska High Court Rejects Unions' Push To Keep DB Plans

July 5, 2006 (PLANSPONSOR.com) - The Alaska Supreme Court blocked an effort Friday by three labor unions to stop a new retirement system for the state's public employees and teachers, the Associated Press reported.
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The Alaska Public Employee’s Association union, the Alaska State Employees Association and the Alaska Correctional Officer Association filed suit requiesting an injunction against the state in late June, claiming the plan would not qualify for tax exempt status with the Internal Revenue Service (See Labor Unions Protest Alaska’s New Pension System).

According to the AP, the law, effective Saturday, will scrap defined benefit plans for public employees and teachers hired after that date, and will enroll them in defined contribution plans. However, current workers will be able to keep their defined benefit pensions unless they choose to switch to the new ones.

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In his opinion, Superior Court Judge Larry Weeks rejected the unions’ call for an injunction, saying that they did not meet the legal standard that would compel him to stop the new retirement plan’s implementation.

The unions contended that the defined contribution plan would leave new employees worse off than current employees, which would go against the state’s constitution. Weeks also wrote that while legal precedent has made clear that the state constitution prohibits diminishing or impairing the accrued benefits of current employees, future employees are not subject to the same analysis.

Even if the state and municipalities would end up owing damages to new employees if the IRS does not qualify the plans, Weeks wrote that fact alone was not enough to grant the injunction request, the AP reported.

In order to cushion the state’s public retirement shortfall of between $5.7 billion and $6.2 billion, Alaska Governor Frank Murkowski signed a  bill   in July 2005 that would switch Alaska Public Employees Retirement System and Teachers Retirement System over to a 401(k)-type plan (See Alaska Public Pension Plans Switching From DB to DC).

Administration July 4, 2006

Vermont Pension Funds Pursue Plan To Environmentally Screen Portfolios

April 19, 2005 (PLANSPONSOR.com) - New England Pension Consultants (NEPC), for Vermont Treasurer Jeb Spaulding, has issued a Request for Information (RFI) from investment managers who focus on environmental sustainability strategies.
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The Vermont State Retirement System (VSRS) and Vermont State Teachers’ Retirement System (VSTRS) are pursuing plans to screen portfolios by environmental criteria, which is the reason for the RFI, according to SocialFunds.com. Spaulding administers investment policies and strategies adopted by the Boards of Trustees for both Vermont state pensions. Combined, the systems have assets of over $2.4 billion.

Investment managers have until May 6 to submit responses.

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“This RFI results from a request from me to the trustees of the two systems to consider an allocation to environmentally sound investment management strategies by conducting an RFP [Request for Proposals] for an environmentally managed US large-cap or Global mandate,” Spaulding told SocialFunds.com. The objective is to reduce environmental financial risk to the state’s portfolios, according to Spaulding.   “We plan to review the responses to the RFI and invite selected vendors to submit formal proposals,” he added.

Spaulding is undecided as to what type of screen he prefers, but will decide based on the responses to the RFI. The RFI requests detailed information on managers’ experience in environmental screening.

The criteria used to make the final decision will include financial performance and information on how environmental screens have impacted performance in the past, SocialFunds.com reports.

The size of the environmentally screened portfolio has yet to be set by Spaulding. He has, however, suggested that about 3% of the state’s total large-cap allocation (about $20 million) should be screened by environmental factors.

Spaulding follows the lead of the California Public Employees’ Retirement System (CalPERS), who recently implemented such a program. One prong of this four-pronged “Green Wave” program calls for applying environmental screens on a $500 million portfolio (See CalSTRS Investment Follows the ‘Green’ ).

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