Benefits April 30, 2000

Time Running Out for US West Retirees

April 30, 2000 (PLANSPONSOR.com) - Once again pension plan retirees are standing up to management - and the fate of a multi-billion dollar merger may hang in the balance, as some 45,000 US West retirees try to make sure that a $5.7 billion pension surplus doesn't disappear in the wake of a pending merger with Quest Communications. But they may be running out of time - and options.
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The Association of US WEST Retirees has accused the company of planning to use the surplus to improve the company’s bottom line, characterizing the practice as “misuse of ratepayer money.” The protest coincides with participant actions against IBM’s cash balance plan and various pending participant lawsuits.

Misuse of funds?

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Retirees claim US West stockpiled the surplus for years, instead of passing along cost-of-living increases – and will now use it to benefit executives and shareholders rather than the intended beneficiaries. The takeover agreement with Quest allows use of US West pension funds to cover 8,700 employees of Quest – which does not have a pension fund.

Hearings are due to conclude Monday at the Arizona Corporation Commission, and are scheduled to begin on June 5 in Minnesota. Five states already have ruled that they lack jurisdiction over retiree matters, or the retirees have withdrawn their objections. The remaining states in the 14-state US West service area do not require state approval.

Last stand?

But Arizona, where more than 10% of the retirees live, may bring a different result. “We feel the commissioners in Arizona are listening,” Mary Hull, executive director of the Association of US West Retirees, told Dow Jones last week. And a Quest executive told Dow Jones that Arizona commission staffers have not been as willing to negotiate as other states. Still, ‘Arizona is our last chance,’ Phil Graham, president of the Telephone Retirees Association of Arizona, told the Arizona Republic last week.

Meanwhile, last week the Minnesota Public Utilities Commission reversed an earlier decision, and has now decided that it is ready to review the case. Ominously for the retirees, the Minnesota PUC says it now believes enough information is available to consider the merger, since the majority of companies, organizations and government agencies have resolved their issues, and support the deal. Minnesota has said it will support an “expeditious” approval.

The merger has been cleared by all federal agencies, pending approval of long-distance divestiture, as well as Colorado and Iowa. In addition to Arizona and Minnesota, regulators in Montana, Washington, Wyoming and Utah still have to weigh in on the $45 billion merger.

Promises, promises

As a condition of approving the merger, US West retirees want guarantees that:

Current pension and healthcare levels will be maintained,

  • Regular cost of living increases be instituted
  • Funds will not be used for other corporate purposes, such as early retirement
  • packages for Quest executives
  • The allocation of the surplus will be dealt with at a US West rate case later this year.

Hull said that maintaining all existing benefits at current levels was most critical.

US West and Qwest have not committed to any use of the surplus, just saying they would follow federal laws governing pension plans. US West general manager Jim Smiley affirmed that “retirees will get the pension benefits they earned. That’s protected by law. That’s what they’re entitled to and will get.”

Deals and People April 28, 2000

Interview: Patrick Mitchell, CalSTRS CIO discusses his career move

April 28, 2000 (PLANSPONSOR.com) - It's a pull every top plan sponsor feels, the riches and freedom to be had in the private sector. So also for Patrick Mitchell, the top investment manager at one of the world's largest pension funds, the California State Teachers' Retirement System.
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“The disparity between private and state sector pay was three times a decade ago. It’s now ten times,” Mitchell said in an interview with PLANSPONSOR.com. “The responsibility has risen much quicker than the pay.”

His reasons for leaving shed light on other recent defections of top managers in the California pension system. A few months ago, Sheryl Pressler, CIO at the California Public Employees’ Retirement System left for a private company. She was followed last week by Bob Boldt, senior investment officer at CalPERS.

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12-Year “Itch”

Mitchell, 50, joined CalSTRS after roughly a dozen years working in commercial banking, which was preceded by 12 year stint working for the US Forest Service and logging operations in Idaho. Consequently, after a dozen years at CalSTRS, it was clearly time to move on to a new endeavor.

At CalSTRS, he was the investment chief for the last three years. Mitchell noted that in 1972 California had no retirement fund, per se – paying teacher’s retirements as a yearly budget expense. Now those obligations are supported by a $115 billion fund – but the responsibilities of managing that fund have risen much quicker than the pay.

Still, Mitchell said, it’s not really about the money. While Mitchell is appreciative of the support and professionalism of his associates at CalSTRS, he reiterates that the private sector is generally more flexible and responsive to the need to spend money to grow revenue. “The emphasis is on controlling expense,” he explained. “It’s hard to add a person, even if you can make a million (dollars).”

The Perfect Job

He intends to pursue other career interests, though he won’t begin his job search for several weeks. His resignation is effective July 15.

Mitchell says in his new job, he’s looking for:

  • An opportunity to be an “owner”, with an equity interest in the company
  • Some control over his destiny – an ability to directly set and implement direction
  • A chance to work with people that he knows and respects, or that are known to people he knows

Having taken the CalSTRS fund from the bottom half of the TUCS (Trust Universe Comparison Service) three years ago to outperforming 72% of other large public pension funds, it “just can’t get any better professionally,” according to Mitchell.

The CalSTRS fund had achieved its goal of consistently adding value, outperforming their strategic benchmark by 230 basis points annually over the past 2 1/2 years, adding $4.5 billion in value beyond the mean return expected for the fund’s risk parameters and equity exposure.

Brain Drain?

“We did not collude” he chuckled when asked about the “wave” of defection announcements hitting public retirement systems in California this year. He acknowledged that while they did talk, and while their motivations for departing may be similar, the timing was totally coincidental.

Mitchell acknowledges a variety of reasons for serving in the public sector; the people, the breadth of responsibility, physical location, a desire to serve. But at some level, the bottom line may ultimately be – the bottom line. “It’s not opaque,” Mitchell said, “it was just time, personally.”

– Nevin Adams

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