National Conference on Public Employee Retirement Systems 2010 Annual Conference

Transcription

1 National Conference on Public Employee Retirement Systems 2010 Annual Conference The Investment Implications for a Retiree Medical Trust May 5, 2010 Gerard V. Tamparong, CFA, CFP Vice President gtamparong@payden.com 333 South Grand Avenue Los Angeles, CA 90071

2 Contents I II III Payden & Rygel The Rising Cost of Healthcare Investment Implications for a Retiree Medical Trust

3 I Payden & Rygel

4 100% Fee Based Investment Management $45 Billion in Assets Under Management 26 Years of Independent Management 18 Employee Owners Founded in Los Angeles, California, in 1983, Payden & Rygel manages more than $50 billion in assets from offices in Los Angeles, London, Dublin, Frankfurt and Hong Kong. Our client list includes an impressive array of corporations, foundations, public funds, foundations & endowments, and private investors. Our product scope is no less impressive US and global fixed income and equity funds, as well as leading edge absolute-return strategies. Our approach to investment management focuses first and foremost on managing risk. In a world where independence in investment management is increasingly rare, Payden & Rygel s independent status is a notable investor benefit. Our independence eliminates the potential for conflicts and makes them solely accountable to one interest Our clients. Timeline Payden & Rygel Founded Payden Funds established Metzler/Payden founded Payden Potomac founded Major commitment to global fixed income 1992 Began managing equities 1998 Payden & Rygel Global 2004 Payden/Wilshire 3

5 $45 Billion in assets under management 550 Client Relationships Separate Account Management Asset Allocation Management Group Payden Family of Funds Equities Large Cap Value Large Cap Core Large Cap Growth Enhanced Index Global Equities International Bonds Cash Management Core Intermediate Short Duration Global Emerging Markets High Yield Tax Exempt Customized investment portfolios Open architecture fund management Competitive fees Pro-active investment consulting $1.6 billion under management 250 relationships Managing portfolios up to $30 million $3 million median account size 24 GASB-45 Retiree medical trusts and municipal clients Payden Funds Metzler/Payden Funds Payden Wilshire Longevity Funds (Target Date Funds) Payden/Kravitz Funds 4

6 GASB 45 Related Trusts and Municipal Clients Seattle Firefighters Portland Police Association* City of Detroit Health Professionals & Allied Employees* City of St. Louis Northern California Fire Fighters* City of Memphis PORAC Retiree Medical Trust* Stockton Regional RMT* Burbank Unified School District* Beverly Hills Police Officers Association Santa Monica Firefighters* El Segundo Police Officers Association Community College Employee Benefit Trust* California Correctional Peace Officer Legal Defense Fund Central Valley RMT* Pasadena Police Office Association* Pasadena Fire Fighter Association Benefit Trust* Southern California Public Safety Trust* United Firefighters of L.A. City Orange County Employees Association* Florida County Clerks City of Jacksonville City of Orlando Riverside POA Health Trust Southern California Firefighters Benefit Trust* * GASB 45- related Retiree Medical Trust 5

7 Educational and Professional Sponsorships National Conference on Public Employee Retirement Systems 2010 Conference Presenter Investment Implications for a Retire Medical Trust Peace Officers Research Association of California (PORAC) Annual Conference Sponsor Legal Defense Fund Investment Manager National Association of Police Organizations (NAPO) 2006 Conference presenter - Prefunding a Pooled Retiree Health Care Program Annual Conference Silver Sponsor IMN Fire and Police Pension Funds Summit 2007 Conference presenter Topics In Healthcare: Reducing Healthcare And Disability Costs and The Healthcare Enhancement For Local Public Safety (HELPS) Retirees Act Conference Sponsor International Foundation Annual Conference Sponsor State Association of County Retirement Systems (SACRS) Affiliate members Montana Police Protective Association 2007 Conference Presenter Advantages of a Retiree Medical Trust * GASB 45-related discussions 6

8 II The Rising Cost of Healthcare

9 Rising Cost of Healthcare The Cost of Medical Care Continues to Rise Faster Than Overall Inflation Add Graph Title Here 7% CPI Total Core CPI CPI Medical Services 6% 5% 4% 3% 2% 1% 0% -1% Source: Bureau of Labor 8

10 Social Security is Not the Answer More than 9-in-10 retirees now get Social Security benefit payments each month. For two-thirds of the elderly, Social Security is their major source of income. For a third of the elderly, Social Security is virtually their only income % or more of Income % or more of Income % of Income % of older Americans 33% of older Americans 65% of older Americans Source: Bureau of Labor 9

11 Covered Workers Per Beneficiary Baby Boomers Are Preparing to Retire Beginning in 2008, 79 million baby boomers begin eligibility for early retirement benefits from Social Security. The number of workers paying into Social Security per beneficiary will drop from 3.3 today to about 2.1 in In 1960, the ratio was Workers Per Beneficiary Declining workers per beneficiary workers per beneficiary workers per beneficiary

12 III Investment Implications for a Retiree Medical Trust

13 Account Value ($) Medical Trusts Investment Cycle Retirement / Spending Contributions Withdrawals for Medical Costs Time 12

14 Account Value ($) Medical Trusts Investment Cycle Retirement / Spending Contributions Withdrawals for Medical Costs Risk Tolerance High Moderate Low 13

15 Investment Solutions Targeted Portfolios Different portfolios for: Years to retirement when will spending actually start? Individuals risk tolerance Portfolios Choices Money Market Portfolio Bond Portfolio Money Market Bonds Stocks Years to Spending Now Within 3 years Target 2015 Retirement Portfolio Target 2020 Retirement Portfolio Target 2030 Retirement Portfolio 3 to 7 years Up to 12 years Longer 14

16 Portfolio Options Your Investment Choices: Target Date Portfolios 2015, 2020, 2030 Bond Portfolio Money Market Portfolio Stocks Bonds Bonds At Target Date Short Term Gov t Securities Portfolios will be constructed using mutual funds and exchange traded funds. Ease of investment (monthly cash flows). Ease of diversification. Low cost. Portfolios will be actively managed to reduce risk annually. The 2015 portfolio will become 100% bonds by The 2030 portfolio will look like today s 2020 portfolio in 10 years. 15

17 Sample Basic Operation Actuary Administrator Board of Trustees Retiree Medical Trust Designs the plan Selects investment strategies and manager(s) Decides distribution options 2% & Sick Leave Cash Out Employees 2% of Wages Investment Manager Attorney Specializing in Employee Benefits Law Non-Taxable Retiree Medical Benefit Generally, the plans are projecting payouts of approximately $400 in benefits for every $100 contributed, although this is somewhat dependent on the demographics and retirement age of any particular group. 16