Wednesday, November 20, 2013

Pensions Issues at the SEC – an Update

There are several recent actions involving the Securities and Exchange Commission (SEC) that should be of interest to public pension plans.

New Municipal Securities and Public Pensions Unit Chief Named 

The first item is the announcement, on November 8, 2013, of the appointment of LeeAnn Ghazil Gaunt as chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit. This specialized unit’s purpose is to focus on misconduct in the municipal securities market and in connection with public pension funds including: offering and disclosure fraud; tax or arbitrage-driven fraud; pay-to-play and public corruption violations; public pension accounting and disclosure violations; and valuation and pricing fraud.

Gaunt replaces Elaine Greenberg, who led the unit from the time of its creation in January of 2010 until earlier this year, when Ms. Greenberg left to join the law firm of Orrick, Herrington & Sutcliffe LLP as a partner in its Washington, D.C. office. During her tenure, the SEC brought its first enforcement actions against states, charging New Jersey and Illinois with misleading investors about the funding of their public pensions in the official statements accompanying bond offerings.

Ms. Gaunt worked in this specialized unit since its inception, and supervised the SEC’s first pay-to-play enforcement action for “in-kind” political campaign contributions in September of 2012 when the SEC charged Goldman Sachs and an executive vice president for violations related to contributions to the then-state treasurer of Massachusetts.

Ms. Gaunt has worked in the SEC’s Boston Regional Office for 13 years. Prior to joining the SEC enforcement staff, Ms. Gaunt was in private practice in Boston, first at Skadden, Arps, Slate, Meagher & Flom LLP and later at Goodwin Procter LLP.

John Cross, director of the SEC's Office of Municipal Securities, is reported in the press to have told the National Association of Bond Lawyers' (NABL) annual workshop in September, 2013, that public pension disclosure will be "a continuing and very significant theme of the SEC." He said that "I can't overemphasize the significance and, at least, the need to focus on pension liabilities because of the sheer magnitude of the numbers."

SEC Proposed Rule on CEO Pay Ratio Disclosure 

In other SEC news, the Council of Institutional Investors (CII) has recently expressed support of its membership for the SEC’s proposed CEO pay ratio disclosure rule. This proposal was approved by the SEC in September, and would require publicly-held companies to disclose the ratio of CEO pay to the median of workers' pay.

The rulemaking was mandated as part of the 2010 Dodd-Frank financial markets reform legislation, and is adamantly opposed by the corporate community, including the Chamber of Commerce. The House Financial Services Committee has also approved legislation (H.R. 1135) in June of this year to repeal the requirement.

CII notes in its letter that while its policies recommend that compensation committees consider “the relationship of executive pay to the pay of other employees” as a factor when developing, approving and monitoring their executive pay philosophy, CII’s policies do not advocate for the disclosure of a CEO-to-worker pay ratio. As a result, CII itself has not taken a position on the matter.

However, “in an effort to assist the Commission obtain useful input from investors about the Proposal,” CII staff discussed it with three of its general members from its three main constituencies -- public, corporate and union employee benefit plans. According to CII’s letter, the results of the discussion “revealed broad consensus among the three members in support of the approach” taken in the SEC’s proposal. “The members generally agreed that the Commission has done an admirable job in proposing to implement [the Dodd-Frank provision]in a flexible manner that attempts to strike an appropriate balance between providing potentially useful information to investors and limiting company compliance costs.”

The deadline for public comments on the SEC’s proposed rule is December 2, 2013.

SEC Roundtable on Proxy Advisory Services 

Finally, the SEC has announced a roundtable on December 5, 2013, to discuss the use of proxy advisory firms by institutional investors. CII has previously requested that the SEC "gather empirical data on the proxy voting practices of investment advisers" in order to provide a factual basis for potential consideration of reforms, which the Commission has been contemplating, dealing with potential conflicts of interest and transparency in the proxy advisory industry.

At issue is whether institutional investors routinely “outsource” their proxy voting responsibilities to proxy advisory firms. "Proxy advisory firms have increasingly teamed up with unions, pension funds and other activist shareholders to push a variety of social, political and environmental proposals that are generally immaterial to investors and often reduce shareholder value," House Capital Markets and Government Sponsored Enterprises Subcommittee Chairman Scott Garrett (R-NJ) also claims. However, others would argue that the services of proxy advisory firms are needed by institutional investors because of their large number of holdings.

The Roundtable will be held at the SEC’s headquarters in Washington, DC, and will be webcast on

Tuesday, November 5, 2013

"Use-or-Lose” Rule for Health Flexible Spending Arrangements (FSAs) Modified

On October 31, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued a notice modifying the longstanding “use-or-lose” rule for health flexible spending arrangements (FSAs).  To make health FSAs “more consumer-friendly and provide added flexibility,” the updated guidance permits employers to allow plan participants to carry over up to $500 of their unused health FSA balances remaining at the end of a plan year.  According to an IRS “Fact Sheet” accompanying the notice, some plan sponsors may be eligible to take advantage of the option to adopt a carryover provision as early as plan year 2013.

Currently, plan sponsors have the option of allowing employees a grace period that allows them to use amounts remaining unused at the end of a year to pay qualified FSA expenses incurred for up to two and a half months following year-end.   Under this new change, an employer, at its option, is permitted to amend its § 125 cafeteria plan document to provide for the carryover to the immediately following plan year of up to $500 of any amount remaining unused as of the end of the plan year in a health FSA.  Furthermore, the carryover of up to $500 does not count against or otherwise affect the indexed $2,500 salary reduction limit applicable to each plan year.

The existing option for plan sponsors to allow employees a grace period after the end of the plan year remains in place.  However, a health FSA cannot have both a carryover and a grace period: it can have one or the other or neither.

Tuesday, September 3, 2013


The Internal Revenue Service (IRS) has issued a new Revenue Ruling 2013-17 addressing the status of individuals of the same-sex who are lawfully married under the laws of a state that recognizes such marriages.  It states that individuals of the same sex will be considered to be lawfully married under the Internal Revenue Code as long as they were married in a state whose laws authorize the marriage of two individuals of the same sex, even if they are domiciled in a state that does not recognize the validity of same-sex marriages.  The terms of Revenue Ruling 2013-17 will start being applied on September 16, 2013, but taxpayers can file refund claims for prior open years even before that date.

The IRS has also released on-line “Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law,” which specifically addresses the rules that qualified retirement plans are required to comply with, along with some examples of the consequences of these rules for qualified plans.  It is well to note, however, that while taxpayers can file amended returns that relate to prior periods in reliance on the new rules, the IRS has not yet provided guidance regarding the application of Windsor and these new rules to qualified retirement plans for periods before that date.

The new Revenue Ruling reflects the recent U.S. Supreme Court decision in United States v. Windsor (June 26, 2013), invalidating a key provision of the 1996 Defense of Marriage Act (DOMA) and implements the Federal tax aspects of this decision.  Under the new ruling, same sex couples will be treated as married for all Federal tax purposes, including income and gift and estate taxes.  Interestingly, however, the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.

The Treasury and the IRS said they intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. They also plan on issuing further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sex spouses for periods before the effective date of this Revenue Ruling.

Thursday, June 20, 2013


The Society of Actuaries (SOA) has created a “blue ribbon” panel that is charged with determining the causes of underfunding in public pension plans and making recommendations to plan trustees, legislators and plan advisors on how to improve plan management and strengthen plan funding going forward.  The panel is to seek input from public plan actuaries and other key constituencies, and to produce a draft report by the end of 2013.  Many are concerned with the SOA’s characterization of the issue, the make-up of the panel and the nature of the questions contained in a survey associated with the project.  NCTR intends to submit a survey response and is encouraging its members to do likewise; the deadline for responding is June 28th.  NCTR’s Executive Director, Meredith Williams, said “I think we must do everything that we can to prevent the SOA from publishing a report unfairly critical of the management of governmental plans and supportive of methodologies that we know will prove harmful to public plans, their participants, beneficiaries, and, ultimately, their sponsors.”

On April 17, 2013, the SOA announced that it had established a “multidisciplinary blue ribbon panel” to:
  • “Determine the causes, at a high level, of plan underfunding by considering how past decisions about benefit design, funding and investing have led to widespread and persistent underfunding of public sector plans;” and
  • “Develop recommendations for plan trustees, legislators and plan advisors on how to improve plan management and strengthen plan funding going forward.”
As announced, panel members include:
  1. Chair: Bob Stein, FSA, MAAA, Retired, Ernst & Young
  2. Co-Vice Chair: Andrew Biggs, American Enterprise Institute
  3. Co-Vice Chair: Douglas Elliott, Brookings Institution
  4. Bradley Belt, Palisades Capital Management, former executive director of the Pension Benefit Guaranty Corporation
  5. David Crane, Stanford University, former advisor to Gov. Arnold Schwarzenegger, CA
  6. Malcolm Hamilton, FSA, FCIA, Retired, Mercer, senior Fellow, C. D. Howe Institute
  7. Laurence Msall, The Civic Federation (Illinois)
  8. Mike Musuraca, Blue Wolf Capital Partners, former trustee of the NYC Employees Retirement Systems-NYCERS and formerly of American Federation of State, County and Municipal Employees
  9. Bob North, FSA, EA, MAAA, FCA, FSPA, New York City Office of the Actuary
  10. Richard Ravitch, Co-chair, State Budget Crisis Task Force, formerly Lt. Governor of New York
  11. Larry Zimpleman, FSA, MAAA, Principal Financial Group

As part of its effort to seek input from “key constituencies,” the panel has also created an on-line survey made up of 30 questions, most of which are open-ended.

NCTR is very concerned with the SOA’s project for several reasons:
  • Characterizing public sector plans as having “widespread and persistent underfunding” is a gross generalization of the situation.  “I do not agree with this statement, and I think that beginning a project based on this basic premise is very problematic,” says Williams. 
  • To NCTR’s knowledge, no public pension plan director was consulted regarding the panel’s make-up, and, as announced, no public plan director is a member. 
  • Several of the panel members, including its co-vice chair, Andrew Biggs with the American Enterprise Institute, and David Crane, former advisor to Governor Arnold Schwarzenegger of California, are well-known, vocal opponents of public sector defined benefit plans and staunch proponents of the use of the market value of liabilities (MVL) and a so-called “risk-free” rate of return.
  • Many of the panel’s survey questions are “very leading and appear to subsume a response, typically one that is critical of public plan management,” according to Mr. Williams.  In addition, of the 26 substantive questions, at least four deal directly with the discount rate, and several others implicate it.   “While the discount rate is certainly critical to funding issues, there are many other aspects to the funding challenge, and this emphasis on the use of the long-term rate of return on assets suggests to me a predisposition as to where this panel’s real focus lies,” says Williams.

 NCTR has prepared a survey response which stresses several key points:
  1. Judging the adequacy of funding requires more than a snapshot of the ratio of assets to liabilities at a specific moment in time.  The key issue is whether a plan sponsor has a funding plan and is sticking to it.  “Where challenges do exist for certain plans with regard to the adequacy of their funding, the primary cause,” according to NCTR’s survey response, “relates to the lack of funding discipline.”
  2. A pension funding policy should be based on an actuarially determined contribution.  It must include funding discipline to ensure that the funding policy contributions will be made, and it should strive to keep employer costs as a reasonably consistent percentage of payroll, in a manner consistent with the actuarial requirements.
  3. The strongest governance practice that those charged with reviewing or making decisions about plan benefit levels and contributions can establish to support the adequate funding of defined-benefit plans is to have a pension funding policy that is based on an actuarially determined contribution, and to fully and consistently fund this contribution. 
  4. The use of a long-term rate of return on plan assets is an appropriate discount rate to use for funding as well as financial disclosure because it is consistent with both the perpetual nature of governments and the enduring, long-term nature of public pensions.  Using a long-term approach in setting the return assumption also promotes stability and predictability of the cost of a pension system.  Finally, the purpose for measuring public pension liabilities is not to price them, but to fund them, and creating a disconnect between the measurement of a liability and the funding of that same liability would only serve to confuse the general public and elected officials. 
  5. If current taxpayers were charged on the basis of present interest rates, rather than a long-term expected rate, significant disparities in what generations of taxpayers are charged for pension benefits could occur.  This volatility would violate intergenerational equity by overcharging some taxpayers and undercharging others, depending upon the timing and direction of the volatility.   
  6. The Market Value of Liabilities (MVL) approach would produce rapid and erratic changes to a public plan’s normal costs, accrued liabilities, and funded levels, and the serious instabilities in the MVL measures would lead either to erratic demands on government resources or plan terminations.  
  7. All trustees, including elected officials and their appointees, have an undisputed fiduciary obligation to act for the exclusive benefit of the plan and its participants.  Trustees must put the interest of all plan participants and beneficiaries above their own interests or those of any third parties.  Continuing trustee education for all plan trustees, including those elected, appointed, or serving ex officio, should be expanded and consideration should be given to making such trustee education mandatory.
  8. The ability of a plan sponsor to fund a promised benefit is certainly a legitimate consideration, but the time to consider this is at the time the benefit itself is approved, or enhancements to it are adopted, and not when the actuarially determined contribution is being set.  

NCTR is asking its members to consider responding to the survey.  “Unless public pension plans respond, there is a real danger that only the views of proponents of a risk-free rate of return and the abandonment of the DB model will be heard,” according to Mr. Williams.

The Society of Actuaries is the largest professional actuarial organization with 22,000 actuarial members and the public in the United States, Canada and worldwide.  The SOA says its vision is for actuaries to be the leading professionals in the measurement and management of risk.  

Thursday, April 25, 2013


On April 18, 2013, Congressman Devin Nunes (R-CA) introduced the newest version of his Public Employee Pension Transparency Act,” HR 1628, and its companion, S 779, was introduced in the Senate on April 23, 2013, by Senator Richard Burr (R-NC).  The bills are essentially the same as the previous versions from the last Congress, with a few significant exceptions.  Despite a “Dear Colleague” request made to other House members on February 25, 2013, Congressman Nunes only has two original cosponsors, as does Senator Burr.  NCTR, along with nine other national organizations, wrote to all House members on April 3, 2013, urging them not to cosponsor the Nunes legislation, and has recently joined with 20 other national groups representing public employers, public employees and public pension fund administrators in writing to former cosponsors of the legislation telling them PEPTA is unwise and unwarranted and asking for a meeting to discuss public pension plan reforms.  There are some signs that PEPTA may have lost some steam since the last Congress, but NCTR and other public sector organizations still view it as a major legislative threat.

In General
The new PEPTA legislation (HR 1628 and S 779) continues to require that, in order to retain Federal tax-exempt status for their bonds, sponsors of State and local pension plans (other than defined contribution plans) must file an annual report as well as potential supplementary reports with the Secretary of the Treasury related to their pension finances. These reports will be entered into a database that will be accessible to the public.

In effect, PEPTA would require every public pension plan to essentially keep two sets of books.  One would be the set that plans currently produce, which would reflect the reality of balanced investment portfolios -- including stocks and other sensible investment alternatives as well as bonds – that have, over the past 25 years, averaged 8.8 percent returns (based on median returns for periods ended 09/30/2012).  The other set would pretend that all public plan assets were invested in U.S. Treasury bonds (even though this is not the case for any public plan), which currently yield around 3 percent. 

The result would be two substantially different measurements of a plan’s unfunded liabilities maintained by the Treasury Department.  One set of numbers would be a substantially increased, artificial liability measurement that the use of the Treasury yield curve would produce, which, along with the unsmoothed valuation of assets, would significantly understate plan funding levels. This artificial set of numbers will differ substantially from those used to fund a plan or required for accounting and financial reporting purposes under GASB.  The reporting of these two sets of numbers will only serve to confuse the public, failing to provide clarity with regard to public pension accounting.
Specifically, PEPTA would require an annual report that would have to include the following:
  • A schedule of the funding status of the plan, including the net unfunded liability and the funding percentage of the plan;
  • A schedule of contributions by the plan sponsor for the plan year;
  • Alternative projections for each of the next 60 plan years of cash flows associated with the current liability, together with a statement of the assumptions used in connection with such projections;
  • A statement of the actuarial assumptions used for the plan year;
  • A statement of the number of plan participants who are retired or separated from service and are either receiving benefits or are entitled to future benefits and those who are active under the plan;
  • A statement of the plan's investment returns including the rate of return, for the plan year and the 5 preceding plan years;
  • A statement of the degree to which unfunded liabilities are expected to be eliminated;
  • A statement of the current cost of the plan for the plan year; and
  • A statement of the amount of pension obligation bonds outstanding.

The two significant changes from last year’s bill are the requirement for 60 years of plan projections of cash flow instead of 20 years, and the addition of the “current cost” of the plan.
In addition to the annual reports, supplementary reports will be required of plan sponsors in any case in which either the value of plan assets in the annual report is not determined using fair market value, or the interest rate or rates used to determine the value of liabilities or as the discount value for liabilities are not interest rates based on US Treasury obligation yield curve rates.

The supplementary report would be required to include certain information specified in the Annual Report -- specifically, a schedule of the funding status of the plan; a statement of plan investment returns; the degree and manner the plan sponsor expects to eliminate its current unfunded liability; and the plan’s current cost -- but determined by valuing plan assets at fair market value and by using the applicable daily Treasury obligation yield curve rate as the discount rate.  (This is also different from the previous legislation, in that it no longer would require the Treasury yield curve to be based on three different periods.) 

Finally, the legislation would continue to prohibit a Federal bail-out of public pensions.

Public Sector Reaction
On February 25th, Congressman Nunes circulated a “Dear Colleague” request to his fellow House members, asking them to join in cosponsoring his legislation.  NCTR immediately alerted its members, urging them to contact their Congressional delegations, particularly those Members who had cosponsored PEPTA in the last Congress, to ask them to call their public retirement systems before they considered cosponsoring the Nunes PEPTA legislation.   

Next, on April 3, NCTR, along with nine other national organizations, wrote to all House members, asking them not to cosponsor the Nunes legislation, and pointing out that PEPTA “paints an inaccurate and misleading picture of the state of public finance and pensions, and ignores the extensive efforts made at the state and local levels to close short-term budget deficits, as well as address longer-term obligations such as pensions.”  The letter went on to note that “Federal intrusion into areas that are the fiscal responsibility of state and local governments is unwarranted” and that it “makes no sense to impose disruptive and costly federal requirements that only serve to interfere with state and local government economic recovery and pension reform efforts.” 

When Congressman Nunes introduced PEPTA on April 18th, NCTR issued a Press Statement that condemned the legislation as a Federal takeover of public pension accounting.  The statement quoted Meredith Williams, NCTR’s Executive Director, as saying that “I continue to be surprised that Congressman Nunes and his supporters believe that imposing unwarranted, unnecessary, and duplicative Federal regulation on state and local governments is the best way to solve any problem.”

The statement went on to note that when, as now, interest rates are very low, PEPTA will make pension plans appear very underfunded.  This could place pressure on State and local governments to put more monies into these funds than they really need based on their actual funding status.  “But when interest rates are high, it could make plans look even more funded than they actually are, which could exacerbate the underfunding of pensions,” the statement pointed out.

Finally, NCTR has joined with 20 other national groups representing public employers, public employees and public pension fund administrators in writing to former cosponsors of the legislation in both the House and Senate on April 24, 2013, telling them PEPTA is unwise and unwarranted and asking for a meeting to discuss public pension plan reforms.  The letter points out that the Government Accountability Office (GAO) (in a March 2012 report entitled “State and Local Government Pension Plans: Economic Downturn Spurs Efforts to Address Costs and Sustainability”) documented that the exhaustion dates cited in the PEPTA summary materials are “not realistic estimates” of the true financial condition of state and local retirement plans.   “Nevertheless,” the letter continues, “the legislation has been reintroduced in the 113th Congress, along with the same misleading information.”

As before, Congressman Nunes was joined in introducing the legislation by Congressman Paul Ryan (R-WI), the Chairman of the House Budget Committee, and Congressman Darrell Issa (R-CA), Chairman of the House Oversight and Government Reform Committee.  These two gentlemen continue to be very powerful members of the overall House Leadership.  However, unlike in the previous Congress, when Mr. Nunes had 36 additional original cosponsors when his bill was dropped and he added another 13 subsequently, he introduced PEPTA in this Congress with only these two additional original cosponsors. And, despite almost two months of seeking other cosponsors, he has only been able to add five more:  Cramer (R-ND); Duncan (R-SC); Jones (R-NC); McClintock (R-CA); and Westmoreland (R-GA). 

Similarly, in the Senate, Senator Burr had only two additional cosponsors when introducing his legislation on April 23rd – Senators Coburn (R-OK) and Thune (R-SD).  In the last Congress, when Burr introduced the Senate PEPTA bill, he had six original cosponsors,  Missing, at least for now, are Senators Grassley (R-IA) and Isakson (R-GA); Senators Ensign (R-NV) and Kyl (R-AZ) are no longer in the Senate.  Also, Senators Kirk (R-IL) and Chambliss (R-GA), who subsequently cosponsored the Burr legislation in the last Congress, are also missing from it so far.
While it is certainly likely that additional cosponsors will be added to both items of legislation, it does suggest that both Senator Burr and Congressman Nunes may have had some difficulty in obtaining comparable numbers for the introduction of this new version of their legislation.  This in turn suggests that the public sector message of unnecessary and unwarranted Federal intrusion is getting across.  Also, unlike the introduction of the PEPTA legislation in 2011, there are no signs of any coordinated media campaign this time around.  Congressman Nunes has not been seen on television talking about “smoking the rats out of their holes,” for example.

However, it is well to note that Congressman Nunes has a new trifold brochure supporting his legislation that includes a litany of supportive quotes and endorsements from newspapers across the country for his earlier bill.  Also, notwithstanding his new role as Chairman of the House Ways and Means Trade Subcommittee, and the demands it places on his time, he has once again championed this legislation.  In short, it cannot be safely assumed that this time he is any less serious about advancing PEPTA.  And as a more senior member and part of the leadership of the Ways and Means Committee, he is now in a much better position to help move it than he was in the last Congress.   

In summary, NCTR and the public pension community in Washington are taking the new PEPTA legislation as a very serious threat.  The risk is not that the legislation will be moved as a free-standing bill, but that it will be added to some other major piece of legislation, such as an extension of the debt ceiling, or tax reform, from which it will be difficult to strip out. 

Hopefully, the efforts of NCTR and its members to keep cosponsors off the bill this time around are working, and Members of Congress are not as quick to jump to blame public pensions for all of State and local governments’ fiscal problems as they have been in the past.  If you have not yet reached out to your Congressional delegation on this matter, please do so as soon as is possible.

Monday, April 1, 2013


A new “Backgrounder on Education” was released by the Heritage Foundation on March 25, 2013.   Entitled Official Education Spending Figures Do Not Incorporate Full Cost of Teacher Pensions, the new report claims that the Federal government “dramatically underestimates” teacher pension costs in its official education spending figures, and that correcting the problem could add tens of billions of dollars—about $1,000 per pupil—to official education spending estimates.
The report’s author, Jason Richwine, is the Heritage Foundation’s senior policy analyst in empirical studies, specializing in education policy, public-sector compensation and labor issues.  He also wrote another Heritage Foundation report, along with Andrew Biggs from the American Enterprise Institute (AEI), entitled Assessing the Compensation of Public-School Teachers.  (This report claimed that public-school-teachers’ total compensation (including benefits) was 52 percent greater than fair market levels indicate they should be, given the “relative lack of rigor of education courses” -- meaning that “many teachers have not faced as demanding a college curriculum as other graduates” -- and the “low cognitive ability compared to other college graduates” that active teachers exhibit.)

Richwine’s latest report asserts that the Federal government’s incorrect education spending estimates are due to the fact that the National Center for Education Statistics (NCES), a division of the U.S. Department of Education, permits states to define teacher pension costs as the amount school districts contribute to their pension funds each year. However, Richwine argues that since governments “frequently underfund their pensions,” the reported amount does not really reflect the “true” costs of these pensions, and that the “correct accounting” would measure pension costs based on the present value of future pension benefits that teachers have accrued. 
Of course, Richwine also insists that this “correct accounting” approach would also use a discount rate based on a virtually risk-free rate of return, such as the yield on U.S. Treasury bonds of around 3 percent currently, instead of the pension accounting method that he notes “detractors might call … an accounting trick” that bases the discount rate on the expected rate of return on plan investments.   This latter approach, Richwine say, is “roundly rejected by financial economists, private pension administrators, and public-sector pension regulators in other industrialized nations.” 

Consequently, Richwine argues, government actuaries discount future pension liabilities at a rate that is too high.  If the current numbers used by the NCES were replaced with both the risk-adjusted normal cost and the payments toward unfunded liabilities, the cost of overall benefits would go up by 78.8 percent, according to Richwine, and official total expenditures-per-pupil would rise from $12,309 to $14,054 during the 2009–2010 school year, which is the most recent year for which data are available.
Therefore, Richwine recommends that the NCES should begin measuring the cost of pensions with actual risk-adjusted pension liabilities rather than annual contributions.  He says that this would provide more accurate estimates of teacher pension costs and of education spending in general.

Richwine devotes much time to discussing how many economists agree that the only appropriate way to calculate the present value of a very-low-risk liability is to use a very-low-risk discount rate.  He says that this is a “basic principle of financial economics,” and that economists “practically unanimously support” this method. 
He goes so far as to point out that in a 2012 poll, 38 of 39 leading economists agreed with this statement: “By discounting pension liabilities at high interest rates under government accounting standards, many U.S. state and local governments understate their pension liabilities and the costs of providing pensions to public-sector workers.”  Richwine asserts that therefore, “defenders of public pension accounting methods, not their critics in mainstream economics, are the embattled contrarians.”

With all due respect to economists, they are not always right.  Indeed, Paul Krugman, an economist and winner of the 2008 Nobel Memorial Prize in Economic Science, has pointed out that economists can indeed make mistakes.  In a September 2, 2009 article in The New York Times entitled How Did Economists Get It So Wrong? Mr. Krugman discussed how so few economists saw the 2008 economic crisis coming.
Mr. Krugman noted that “During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right.”  “There was nothing in the prevailing models,” he observed, “suggesting the possibility of the kind of collapse that happened” in 2008.  The problem, he went on to say, was that the economics profession “went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”

So too, perhaps, with the discount rate controversy?  The financial economics model for the discount rate may work beautifully for critics of public sector defined benefit plans when, as now, there is a very long period of very low interest rates.  It can make it appear that plans are discounting future pension liabilities at too high a rate.  Consequently, critics argue, basing the discount rate on the expected return on plan investments systematically understates the costs of funding public pension plans. 
However, what happens when interest rates are very high?  Does the “truth” of Mr. Richwine’s assertions still hold?  For example, 30-year Treasury yields (as of the June valuation date) were almost at 14% in 1982 and 1984.  Between 1978 and 1985 they were consistently above 8%.  During such periods, would financial economists continue to insist that a discount rate based on expected rates of return understates the costs of funding plans?  Would 38 of 39 leading economists still agree that by discounting pension liabilities at the expected rates of return, many U.S. state and local governments were understating their pension liabilities and the costs of providing pensions to public-sector workers?

Basing the discount rate on the risk-free rate of return during periods of high interest rates could make plans look much better funded than they actually are.  Contribution rates could fall below those based on expected rates of return, and could exacerbate underfunding problems when interest rates drop.
I am not an economist, but it seems to me that for a theory to be useful -- in practice and not just in theory -- it should work regardless of whether a risk-free rate is at historic lows, as it has been now for several years, or in the double digits, as it may well be in the future depending upon inflation. 

Just consider me an “embattled contarian.”


Friday, March 15, 2013


On March 11, 2013, the Securities and Exchange Commission (SEC) charged the State of Illinois with securities fraud for misleading municipal bond investors about the State’s approach to funding its pensions – specifically, the Illinois State Employees’ Retirement System; the State Universities Retirement System; the Illinois Teachers’ Retirement System; the Judges’ Retirement System; and the General Assembly Retirement System.  This is only the second time that the SEC has used its anti-fraud statutes against a state in order to underscore what the Commission sees as flawed public pension disclosure by municipal bond issuers; the first involved New Jersey in 2010.
According to the SEC’s investigation, Illinois did not inform investors about the significant impact of problems with its pension funding and failed to disclose that it had “structurally underfunded” the State’s pension obligations and increased the risk to its overall financial condition as a result.  Illinois, without admitting or denying the findings, agreed to settle the SEC’s charges and entered into a “Cease and Desist” Order with the agency.
Elaine Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit, said that the area of public pension disclosures “continues to be a top priority of the unit.”
There are several aspects of the Cease and Desist Order that are worth noting:
·       The SEC provides some insights as to what it views as an acceptable public pension funding policy – or at least what it does not.  Specifically (see Finding 9(a)), the SEC believes that contributions to a plan must be sufficient “to prevent the growth of its unfunded liability” and should cover both the normal cost and a payment to amortize the accumulated amount of pension liabilities that have been deemed earned but are not funded (the unfunded actuarial accrued liability, or ‘UAAL’) for an identified group of plan participants.
(What is an acceptable amortization period?  The SEC does not say.  But the Commission does observe that a 90 percent funding target “allowed the State to amortize the UAAL in a manner that would not eliminate it entirely,” thus increasing the “economic cost” of the pensions and delaying the cash outlays necessary to fulfill the pension obligations.  Also, the SEC noted that Illinois spread costs over fifty years, “in contrast to the thirty-year amortization period adopted by the pension plans of most other states.”) 
If a funding policy does not at least prevent the growth of a plan’s unfunded liability, the SEC found that the result could structurally underfund pension obligations and backload the majority of pension contributions “far into the future,” thereby resulting in “significant stress” on a pension system and on a state’s “ability to meet its competing obligations.”
In short, the SEC found that, at least in the Illinois situation, the “State’s pension contributions were calculated in accordance with State law, not in accordance with the ARC,” and therefore Illinois “deferred funding of the State’s pension obligations and compounded its pension burden.”
Granted, the violation of law was not due to Illinois’ failure to follow some SEC model for funding, but the Commission’s preference for the ARC, as it defines it, over state law, is informative.  Does it mean that if a state has a stautory contribution rate that is less than the ARC, that it is "structurally underfunding" its pension obligations and needs to disclose this in its bond offering statements? 
·       The SEC does not like the projected unit credit (“PUC”) actuarial cost method.  It found that Illinois’ use of it “compounded the risk” of the state’s Statutory Funding Plan and that Illinois “did not inform investors that other aspects of the State’s funding method, such as the State’s use of the PUC method, delayed contributions and increased the unfunded liability.”  (See Findings 9(f) and 13(c).)
·       Beware of consultants.   The SEC was quick to point to a pension consultant retained by the Governor’s Office of Management and Budget who wrote that the Illinois pension system “is now so underfunded that the State likely [would] never be able to afford the level of contributions required to ever reach 90 percent funding.”  The SEC found it problematic that this information was not disclosed to bond investors in bond offering documents.  (See Finding 10(b).)  How broadly, and to whom, does this term “consultant” apply?
·       Policies and procedures related to pension disclosures are important.  In the Illinois situation, the SEC found that the State’s misleading disclosures resulted from, among other things, various institutional failures, including failures to adopt or implement sufficient controls, policies, or procedures designed to ensure that material information was assembled and communicated to individuals responsible for disclosure determinations; to train personnel involved in the disclosure process adequately; and to retain disclosure counsel.  “As a result, the State lacked proper mechanisms to identify and incorporate into its official statements relevant information held by the pension systems and other bodies within the State,” according to the SEC. 
The Commission also found that the State and its advisors “did not scrutinize the institutionalized description of the Plan adequately and made little affirmative effort to collect potentially pertinent information from knowledgeable sources—in particular, actuaries for the pension systems.”
Finally, the SEC refers favorably of the remedial steps taken by Illinois, including, prior to dissemination of official statements, a review by the pension systems, as well as the Office of the Comptroller, the Office of the Treasurer, and the Office of the Illinois Attorney General.  (See, generally, Findings 23 through 26.)
In general, this Cease and Desist order is more focused that the SEC’s action involving the State of New Jersey.  It is shorter (11 pages compared to 17 pages for the New Jersey order, and it makes fewer findings (31)as compared to New Jersey (51).   Perhaps more importantly, it does not get into the pension plans’ preparation of the numbers reported to the state, as it did with New Jersey, but focusses instead on the Illinois’ “structural underfunding” of its pension obligations.   
For example, the New Jersey order found problems with the fact that the State’s bond offering documents “did not disclose the effect of the State’s use of a five-year smoothing method to measure the actuarial value of assets,” which, despite the fact that such smoothing was permissible under applicable GASB standards at the time, the SEC nevertheless found troublesome because New Jersey‘s  contributions to its pension plans  were based on an actuarial value of assets that differed significantly from their market value and thus “reduced the State’s statutory contributions to the pension plans.”
In the New Jersey order, the SEC also found it problematic that the bond offering documents “did not provide asset and funded ratio information on a market value basis.”  The SEC found that “Investors lacked sufficient information to assess the current financial health” of the New Jersey pension plans “as a result of the absence of asset and funded ratio information on a market value basis.’
The Illinois order did not discuss either of these issues.  Perhaps the SEC viewed the Illinois disclosures as being adequate in this area, or that it had sufficient bases for fraudulent action and did not need to discuss these matters.  However, it is worth noting their absence.

Tuesday, January 29, 2013

January 2013 Federal E-News Update

On January 16, 2013, the Business Roundtable (BRT) announced that it was recommending mandatory Social Security coverage for all new State and local government employees as part of any “comprehensive economic growth and deficit-reduction strategy” that Congress and the Administration develops.   (The BRT is an association of chief executive officers of leading U.S. companies with more than $7.3 trillion in annual revenues and nearly 16 million employees.)

In an Op-Ed in the Wall Street Journal, Gary W. Loveman, CEO of Caesars Entertainment Corporation and Chair of the Business Roundtable’s Health and Retirement Committee, wrote that about one in four State and local government workers is exempt from Social Security payroll taxes and that Congress and the White House should eliminate this “special exemption” for all new state and local government workers.  It is believed that this is the first time that the BRT has endorsed such a proposal.

Based on a report prepared for the Committee to Preserve Retirement Security (CPRS) by the Segal Company in 2011, it is estimated that the governmental employer and employee cost of Social Security coverage for newly hired governmental workers for the first five years of coverage would be $53.5 billion. This increased cost in payroll taxes would have an impact in every state.   (CPRS is composed of individuals and organizations having an interest in maintaining a Social Security system which does not impose mandatory participation on state and local governmental units and their employees.)

The BRT’s “Social Security Reform and Medicare Modernization Proposals” also include recommendations to gradually raise both the Social Security retirement age and the Medicare eligibility age to 70, exempting anyone who is currently 55 or older.

On Thursday, January 24, 2013, President Obama announced his intention to nominate Mary Jo White to become Chair of the Securities and Exchange Commission (SEC).  White was the U.S. attorney for the Southern District of New York (Manhattan) from 1993 to 2002, and is now the partner in charge of litigation at Debevoise & Plimpton in New York City.  If confirmed by the Senate, which some observers are saying could happen as early as April, White will replace Elisse Walter, who is currently serving out the remainder of the term of Mary Schapiro, the former SEC chair who resigned in December.

Among White’s claims to fame are her convictions of the terrorists responsible for bombing the World Trade Center, and John Gotti, the head of the Gambino crime family.  She would be the first prosecutor to head the SEC in its 79-year history, and her appointment is widely believed to be a strong message that White will “give high priority to expanding the [SEC’s} enforcement efforts,” according to an article by the Associated Press.  The Wall Street Journal agrees, saying that her nomination “could signal tougher policing of Wall Street.” 

Others are concerned with her lack of regulatory experience.  “What we need now, it seems, is someone who can lay down the rules, still not finalized from Dodd-Frank, that will not just hopefully limit Wall Street malfeasance but its propensity for stupidity as well,” argues Stephen Gandel, senior editor for Fortune, writing for CNNMoney on January 24th.  (Indeed, according to a new Government Accountability Office (GAO) report, Federal regulators have issued rules for less than half of the Dodd-Frank provisions that require them.)  Gandel calls White “the right woman at the wrong time.”

Jeff Mahoney, general counsel for the Council of Institutional Investors (CII), told Pensions and Investments that CII’s members look forward to working with White to further corporate governance measures.  “She obviously has outstanding credentials,” Mr. Mahoney was quoted as saying.

White’s appointment could also be good news for those who were concerned with some of the reform recommendations in the SEC’s recent report on the municipal bond market that Chairman Walter had helped to spearhead, which included improving disclosures in muni bond offerings, such as those related to pensions.    According to The Bond Buyer, White, “in an attempt to make the most of the SEC’s limited resources, may chose to focus more on addressing issues in the corporate market, and less on muni market issues.”
Congressman Devin Nunes (R-CA), the chief sponsor of the Public Employee Pension Transparency Act (PEPTA) in the last Congress, has been named as the chairman of the House Ways and Means Committee’s Subcommittee on Trade.  This is Nunes’ first leadership position on the powerful House tax-writing committee, and it is unclear if this will affect his interest in public pensions.

Congressman Nunes, who was previously an unknown when it came to public pension reform, first introduced his PEPTA legislation during the lame duck session of the 111th Congress in 2010, and then re-introduced it in the last Congress (the 112th) on February 9, 2011.  He pursued an aggressive media campaign in connection with the legislation that year, famously telling Fox News that he was “trying to smoke the rats out of their holes” with his bill.  It was also showcased in five separate hearings in the House of Representatives in 2011.

Since then, Nunes has had relatively little to say directly with reference to his legislation, which has nevertheless become a focal point for many opponents of public sector defined benefit plans.   Now, as chairman of the Trade Subcommittee, he will have jurisdiction over tariffs, import and export policies, customs, international trade rules, and commodity agreements.   Nunes himself has said that his focus for the next two years will be on creating a free trade agreement between the U.S. and the European Union and expanding the Trans-Pacific Partnership, a pact formed in 2011 to boost trade and investment between Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the U.S.  No small tasks.

Will Congressman Nunes still have the time, or the interest, for pensions?  Once the 112th Congress ended, his PEPTA legislation also expired, and will have to be reintroduced in the 113th Congress.   Will Mr. Nunes continue his leadership role with the issue, or will it be picked up by others.  As of the date of this writing, Congressman Nunes has NOT reintroduced his PEPTA legislation in the new Congress.

On the other hand, as a member of the Ways and Means Committee leadership, Nunes will have an increased ability to move his legislation if he so desires, even if it has not been formally re-introduced.  For example, in 2012, the substance of the PEPTA bill was briefly – and eventually, unsuccessfully -- in play as a potential addition to a must-do piece of legislation dealing with student loans and highway funding, suggesting how the legislation may ultimately move – not as a free-standing bill but as part of a larger package of urgent legislation. Finally, while the flames may have died down since 2011, those behind the scenes stoking the fires of Federal intervention in the public pension arena are still very much active and alert to any possibilities to advance their cause.

It is hard to believe that, given the investment of time and effort that opponents of public pensions have put into advancing PEPTA, it will not reappear in the 113th Congress in some form, even if not reintroduced by Congressman Nunes.  

Joshua Rauh, now a professor of finance at Stanford University’s Graduate School of Business, is still active in spreading inflammatory accusations and misinformation concerning public pensions.   However, he is not going unchallenged.  Recently, NASRA’s research director, Keith Brainard, publically called Rauh out, asking why he and other academics are not held accountable for false statements and their consequences like public officials would be.

A new video prepared by the Stanford University Graduate School of Business published on January 25th on YouTube features Professor Rauh discussing the “Looming Pension Crisis.”  For example, Rauh warns that there is going to be “a great deal of competition between municipal bond holders and the recipients of the [governmental] pensions as to who is going to get paid first.”  Also, did you know that 10% of the population (public employees) is owed $4.5 trillion by the other 90%?  (Rauh continues to make these claims concerning taxpayer liabilities associated with unfunded pensions despite the NCTR/NASRA brief debunking his research in this regard.) 
In the new video, Rauh provides his explanation for what is wrong with the way that state and local governments budget for employee pensions; what happens if public sector pension funds do not achieve targeted returns; how would a public sector pension crisis impact financial markets; and why should the business community be concerned about a pension crisis.  And he does it all in less than 5 minutes!

Playing soon at a theater near you – or on a state legislator’s iPad? 

However, Professor Rauh is no longer getting away with making false statements unchallenged.  In an article in the January 21, 2013, issue of Pensions and Investments, NASRA’s Keith Brainard calls out Professors Rauh and his colleague, Professor Robert Novy-Marx, for their long-running campaign of misinformation.  A function of negligence or fraud, Brainard asks. 

As well credentialed academics on the staff of highly respected institutions of higher education, they should know better, Brainard asserts.  “Given their backgrounds and positions,” he observes, “one would assume they are capable of basic research and are making their claims based on solid information.”  However, apparently the two are not, if an op-ed piece in the December 10, 2012, Providence Journal, is any example, Keith explains.

In that piece, Rauh and Novy-Marx state that Rhode Island’s anticipated annual return of 8.25% in pension investment has for the past decade come in at about one-third that rate, only 2.4%.  That is simply false, Brainard points out.  In fact, information made public by the Rhode Island retirement office regarding its investment return for the past decade, prepared by an independent consultant, shows the Rhode Island pension fund's annualized return for the 10-year period ended last Sept. 30 was 8.3%, not 2.4%.  In addition, Brainard notes, since 2010 the Rhode Island retirement plans have used an anticipated annual return of 7.5%, not the 8.25% rate claimed by the professors.  

In the past, Rauh’s “misinformation” has also been called into question by none other than the U.S. Government Accountability Office (GAO), which observed, in connection with Rauh’s study purporting to identify the dates when specific public plans were expected to exhaust their assets, that these projected exhaustion dates were “not realistic estimates of when the funds might actually run out of money.”

Pointing out that if a public or corporate official distributes false financial information that serves as the basis for unwarranted action by others, they are guilty of either fraud or negligence depending on whether it was signed off on knowingly or carelessly, Brainard asks:  “Why then are academics not held to the same level of accountability?” 
Why, indeed.

The National Institute on Retirement Security (NIRS) has just released a new issue brief providing a comprehensive overview of the public pension investment process.  Given the increased attention to public pension investments by the media and critics of governmental plans following the market turndowns of the last decade, this NIRS primer should prove very helpful in educating policymakers and the public, providing the basics as to how public pensions allocate assets and set expected rates of return.

The new publication, “How Do Public Pensions Invest?  A Primer,” is co-authored by Ronnie Jung, CPA, the former executive director of the Teacher Retirement System of Texas and a past president of NCTR; and Nari Rhee, PhD, NIRS manager of research.   It focusses on several aspects of the investment process, including:
  • Distribution of investments across stocks, bonds, and other asset classes in order to maximize returns and minimize risk;
  • Principles that guide how public pension funds invest and the institutionalized practices through which plan trustees set investment policies;
  • Evaluation and management of investment related risk; and
  • Investment return assumptions among public pension funds in comparison to historical performance and the future outlook.
NIRS also conducted a webinar on its new release, and produced a PowerPoint presentation with helpful charts and tables explaining the overall investment process.

A review of contributions data for the nation’s largest teacher pension systems collected by the Public Fund Survey, which is a joint project of NCTR and NASRA, was recently compared to education spending data published by the U.S. Census Bureau.  The results show that, on average, teacher pensions account for only 3.96% of all state and local spending on education. 

This may come as a surprise to the National Council on Teacher Quality (NCTQ) and others who claim that the structure of teacher pension systems is untenable and who have argued for years that the quality of education suffers as already strapped school systems are required to commit increasing shares of their current funds to pay for retired teachers’ benefits.

Pension Dialog recently distributed a table based on research conducted by Alex Brown, research manager at NASRA, which shows the rates calculated for statewide retirement systems whose only members are teachers and/or education workers for FY 2010.

Note that the States whose teachers do not participate in Social Security are italicized in the table.  According to Alex, this factor helps to explain why these states may have higher percentages of spending associated with pensions than other states in the table.

The Employee Benefits Research Institute (EBRI) as well as the Government Accountability Office (GAO) have both issued recent reports concerning differing aspects of annuitization.   EBRI looks at how plan design – namely the ability to make a lump sum withdrawal --directly affects the chances that a retiree will choose to annuitize his or her retirement savings, while GAO examines new forms of annuitization that offer guaranteed lifetime withdrawal benefits, and discusses their potential appeal as well as their downsides.

EBRI reports that annuitization decisions are directly linked to plan design.  If a lump sum distribution is not offered in a DB plan, then annuitization rates are very high.  If lump sums or partial lump sums are available, annuitization rates drop dramatically.  In short, EBRI says that the rate of annuitization “varies directly with the degree to which plan rules restrict the ability to choose a partial or lump-sum distribution.”  

Therefore, in the context of overall retirement security for all Americans, the challenge in providing retirees with a benefit that they cannot outlive may have less to do with a lack of knowledge about annuities and how they work, or their costs, or a desire to have access to assets in cases of emergencies, and more to do with simply having the chance to cash out their retirement savings.  The study focuses on DB plans and cash balance plans, but perhaps the real lesson here is for DC plans? 

The new EBRI issue brief also looks at annuitization decisions of both older workers and younger workers; annuitization trends by account balance; and annuitization trends by tenure.

The GAO has also issued a report recently concerning annuities.  Its focus is on two specific products: variable annuities with guaranteed lifetime withdrawal benefits (VA/GLWB), and contingent deferred annuities (CDA), which are relatively new.   A recent five-minute GAO “podcast” is now also available that covers the report’s highlights.

Unlike more traditional annuities, the assets of purchasers of VA/GLWBs and CDAs are not annuitized.  Consumers can withdraw any or all of their funds at any time.  Also, under a CDA, the guarantee of lifetime withdrawals can, in certain cases, be applied to existing investment assets.  That is, instead of having to first sell the assets and then use the proceeds to purchase the annuity, as is typically the case, existing investment assets may be able to be used to purchase a CDA to cover them.

The GAO report explains how the two products function, including how investment gains and losses are treated, how withdrawal amounts are determined, and what happens when a consumer’s investment account is depleted.  The report also discusses some of the risks that can be associated with these products.  

As the Congress and other policymakers examine the future of retirement security, could these products have an increasingly important role to play?
The Bureau of Labor Statistics (BLS) has produced what it refers to as a “visual essay” consisting of a number of charts and graphs documenting the decline of the traditional defined benefit pension in the private sector and focusing on what remains.  BLS examines current plan features, changes to the data over time, and additional details about defined benefit plans, documenting, for example, which private sector industries and areas of the country still utilize the DB model.    

As the BLS notes, defined benefit plans are becoming rare for workers in private industry, with only 10 percent of all private sector establishments providing defined benefit plans in 2011, covering 18 percent of private industry employees.  

In addition to the decline in coverage, BLS identifies recent trends among private sector DB plans reflecting employer decisions to convert to cash balance plans or limit future accruals.
The Bureau of Labor Statistics of the U.S. Department of Labor is an independent statistical agency responsible for measuring labor market activity, working conditions, and price changes in the economy. Its mission is to collect, analyze, and disseminate essential economic information to support public and private decision-making. 

A bipartisan group of House members has proposed legislation to freeze the current Congressional pension plan, preventing current members from accruing any more benefits, and shutting down the system completely for new members of Congress.

On January 4th, Congressman Tim Griffin (R-AZ) introduced the “End Pensions in Congress” Act (EPIC Act), that would terminate further retirement benefits for Members of Congress, except the right to continue participating in the Thrift Savings Plan (TSP).  The TSP is the defined contribution plan for Federal employees.  The bill has seven cosponsors:  Ron DeSantis (R-FL); Trey Gowdy (R-SC); Mick Mulvaney (R-SC); Steven Palazzo (R-MS); Trey Radel (R-FL); Reid Ribble (R-WI); and Kevin Yoder (R-KS).

On January 25th, Congressman Mike Coffman (R-CO) introduced HR 423, similar legislation.  His version has five cosponsors:  David Cicilline (D-RI); John Fleming (R-LA); Virginia Foxx (R-NC); Jared Polis (D-CO); and David Schweikert (R-AZ).

Griffin has said in the past, when introducing similar legislation in the 112th Congress, that eliminating pensions for those who will be elected in the future “will show we are serious about addressing Washington’s unsustainable spending.” 

According to a press statement issued this year, Congressman Coffman believes that “Congress needs to set an example for the country and I believe that ending our pension plan would be a good start.” Huh?  “It makes no sense for congress to continue to reward itself, using taxpayer dollars, with a defined benefit plan,” Coffman said, “when much of the country has moved to a defined contribution plan like a 401K.”  Coffman said that “We need to end this perk.” 

Both bills have been referred to the Committee on House Administration, and in addition to the Committee on Oversight and Government Reform.  Their legislation introduced in the 112th Congress was similarly referred, but did not receive action before that Congress adjourned.   

And you thought that you were the only ones to have to deal with DB/DC conversion efforts.