Administration October 26, 2011

Plan Sponsors Predict Demand for SRI Will Increase

October 26, 2011 (PLANSPONSOR.com) - In a recent joint study, the US SIF foundation and Mercer found that the number of defined contribution plans in the U.S. offering a sustainable and responsible investing (SRI) choice could double in the next two to three years.
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The study,Opportunities for Sustainable and Responsible Investing in US Defined Contribution Plans, points out that 14% of the DC plan sponsors responding to the survey already offer one or more SRI options, while an additional 13% of survey respondents either are discussing adding an SRI option or intend to do so in the next two to three years. More than four out of five plan sponsor respondents (84%) — both those that currently offer SRI options and those that do not — predict that demand for SRI options in retirement plans will increase or remain steady over the next five years. 

According to a news release, for those plan sponsors that currently offer SRI options, the primary reasons for doing so are to align their plans with their organizational missions and to meet employee demand. However, more than 70% of the plan sponsor respondents that do not offer such options say they believe that SRI options have never been requested by participants. (The survey did not ask plan sponsors whether they had a formal way to elicit or track participants’ potential interest in SRI or other options.)  

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A small subset of respondents say they do not offer SRI options but have received participant requests for them. These plan sponsors say the primary reason they have not added SRI options—cited by just under one-quarter of the subset—was that the requests from participants have not reached a sufficient level. Somewhat lesser concerns—cited by under one-fifth of this group—were questions about fiduciary duty and financial performance.  

Whether a plan sponsor offers SRI options bears little correlation to the plan’s size, either by value of assets or number of participants. Rather, it appears that SRI options are most likely to exist where the philosophy is aligned with an organization’s objectives and culture. SRI options are more likely to be found in the plans of non-profit, mission-based or public organizations than in corporations. 

The news release said nearly three in five respondents (58%) say they have minimal or no understanding of SRI investment products and indices.    

The survey report can be found at http://www.ussif.org/resources/pubs/.
Administration October 26, 2011

Investment Returns Fall Short for KY Public Pension Funds

October 26, 2011 (PLANSPONSOR.com) - Kentucky's two public pension funds fell short of their assumed rates of investment return over the last decade, raising more retirement concerns for public workers, reports the Lexington Herald Leader.  
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The $14 billion Kentucky Retirement Systems (KRS), which covers 324,000 state and local government workers, expected a 7.75% rate of return, but earned only 5.51% over the past 10 years. The $15 billion Kentucky Teachers’ Retirement System (KTRS), which covers 125,000 public school teachers, expected to earn 7.5% while getting only 4.8% over the past 10 years, states the article.

Members of the state legislature’s Interim Joint Committee on State Government will meet on Wednesday. Lawmakers are expected to ask pension officials if their investment income will be adequate to pay lifetime pensions and health insurance for half a million people.

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Nationally, the states collectively face an unfunded liability of $660 billion in their public pension funds, according to an April report from The Pew Center on the States, and the Pew Center said Kentucky is in worse shape than most states, the Herald Leader noted. Some experts suggest the states adopt a “riskless” assumed rate of return tied to the 30-year U.S. Treasury bond, which fluctuates with the market, according to the report.

Officials at the pension funds say change isn’t necessary, at least not yet.

They take a longer view than one-, five- and 10-year returns. Their boards of trustees adopt the assumed rates of returns based on several decades of performance, they said. By the year 2030, the period from 2000 to 2011 should look like an unfortunate aberration, they said.

“The current flat market returns cannot last forever. Things do change,” said Robert Barnes, General Counsel for KTRS, according to the news report.

Under pressure to produce better returns, KTRS and KRS are diversifying their portfolios beyond the usual domestic stocks and bonds. For example, KTRS now invests significantly in international stocks, Barnes said. KRS in 2009 agreed to place $200 million in a start-up hedge fund.

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