In the best-case scenario, the federal government’s plan to ensure all Canadians save for comfortable retirements is in limbo.

In more dire circumstances, which some envision, the proposed low-cost Pooled Registered Pension Plan that would cull savings from workers who don’t have a pension plan through their employer is dead.

Ed Waitzer, director of The Hennick Centre for Business and Law in Toronto, is decidedly a believer in the more dire outcome for PRPPs.

“I think they’re likely DOA,” he said recently, nearly a year after co-writing a report for the C.D. Howe Institute that expressed concern about the success of closing the retirement savings gap being largely left in the hands of the provinces.

Developments since then have convinced him that the federal-provincial co-operation model put in place “is too fragmented to be able to get an initiative like this done.”

So far, none of the provinces have passed legislation requiring employers to offer the federally mandated pooled pensions to their employees.

The view in late 2010 was very different. That December, after months of discussions, Canada’s federal and provincial finance ministers put out a statement in which they agreed on the idea of pooled pensions administered by regulated financial institutions such as banks and insurance companies.

“The future of the PRPP project from here will very much depend on how seriously Ontario and Quebec take it,” he says. “That is hard to tell at this point, with the new Quebec government still settling in and the Ontario Liberal leadership convention still two months off.”

David Denison, former chief executive of the Canada Pension Plan Investment Board, says gaps left in the PRPP plan at the federal level “don’t make it especially compelling for people to get behind [it] and push ahead.”

The plans aren’t mandatory for employers, and there is no mechanism to create a gradual payout stream that would help Canadian manage their money through a retirement that could last decades, he says. Without that, the PRPP, even if it becomes a reality, is likely to fall short of the policy objective of helping Canadians generate sufficient retirement incomes.

“It’s not really going to make a significant difference,” he says.

Michael A. Fletcher of the Washington Post reports, Pension Benefit Guaranty Corp. running $34 billion deficit:

The federal agency that insures pensions for 43 million Americans saw its deficit swell to $34 billion in the past year, the largest in its 38-year history.

In its annual report released Friday, the Pension Benefit Guaranty Corp. blamed the growing shortfall on its inability to charge private employers adequate premiums for insuring pensions.

Citing the increasing deficit, PBGC Director Joshua Gotbaum called on Congress to give the agency power to set its own premiums. “We continue to hope that PBGC can have the tools to set its own financial house in order, the way other government and private insurers do,” he said in a statement.

The Obama administration has called on Congress to give PBGC’s board the power to set premiums. But those efforts have been unsuccessful, in large part because some members of Congress say that a new premium structure could significantly raise costs for companies whose retirement funds already are at risk of running out of money. Although Congress has raised PBGC premiums repeatedly in the past, they have not gone up in recent years.

PBGC is funded by a combination of insurance premiums from private pension plans, investment returns on its $85 billion in assets and recoveries from bankrupt companies. It receives no taxpayer money, and its leaders say it has has sufficient reserves to cover its obligations.

Overall, the agency saw its long-term liabilities increase $12 billion to $119 billion, while its assets grew by $4 billion over the past year.

If the shortfalls continue, Gotbaum warned, “PBGC may face for the first time the need for taxpayer funds. That is a situation no one wants.”

The agency has proposed setting premiums that reflect the perceived riskiness of the pension plans it insures, with financially shaky firms paying more to have their pension promises guaranteed by the agency.

But business lobbyists have branded the proposal a non-starter. They say any increases would work against the agency’s larger goal of enhancing the troubling retirement security landscape confronting many Americans by making it more expensive for the dwindling number of firms that have pension plans to insure them.

Currently, fewer than one in six private-sector workers are covered by defined-benefit pensions, a percentage that has been shrinking for three decades. More than half of private-sector workers have no retirement coverage through their employers.

Meanwhile, 53 percent of Americans are in danger of being unable to maintain their standard of living in retirement, according to the Center for Retirement Research at Boston College.

The agency’s deficit also has been fanned by low interest rates, which under accounting rules makes many troubled pension funds look even weaker.

In addition to its growing deficit, the PBGC said that at the end of 2010 it faced $332 billion in potential liabilities from fiscally unsound plans that could end up in its hands in the future.

In the fiscal year ended in September, the agency paid nearly $5.5 billion in benefits to 887,000 retirees whose plans have failed, and 614,0000 people are expected to collect benefits from the agency once they retire. In that year, the agency also assumed responsibility for the pensions of 47,000 people in newly failed plans.

The agency also is charged with discouraging financially trouble firms from jettisoning their pension obligations. Last year, the agency helped protect the pensions of 130,000 employees of American Airlines, which is in bankruptcy, according to the report.

It also helped preserve the pensions of 37,000 people whose companies have emerged from bankruptcy, including Houghton Mifflin Harcourt Publishing, the food retailer A&P, and the publishing company Lee Enterprises.

The latest high profile company to terminate its defined-benefit pension plan as part of a liquidation is Hostess Brands. According to Business Insurance, the PBGC will assume its liabilities.

The agency has now run deficits for 10 straight years. The gap has grown wider in recent years because the weak economy has triggered more corporate bankruptcies and failed pension plans.

If the trend continues, the agency could struggle to pay benefits without an infusion of taxpayer funds.

Agency Director Josh Gotbaum said Friday that continued deficits "will ultimately threaten" the PBGC's ability to pay pension benefits to retired workers.

"There's no imminent threat that we're going to stop cutting checks," Gotbaum said during a conference call with reporters. However, he said, Congress must act "long before 10 years from now" to increase the insurance premiums that companies pay to the agency.

The Obama administration has proposed raising the premiums and tailoring them to the size of companies and their level of financial risk. Under the plan, bigger companies and those at greater risk of failing would pay larger premiums. The fees haven't been raised in six years.

Companies whose pension plans failed in the latest year, with the agency taking them over, included Friendly Ice Cream Corp., law firm Dewey & LeBoeuf and Olan Mills. Inc.

The PBGC joined with unions at American Airlines earlier this year to oppose the company's plan to terminate its pension plans. The move would have dumped billions of dollars of new obligations on the agency. American ended up freezing pensions for most workers instead of terminating them.

The American Benefits Council, which represents businesses, called the $34 billion deficit figure misleading and said it was based on faulty math.

"The public should not be led to believe the PBGC is in danger of a bailout, and Congress and the Obama administration should not use this number as a pretext to raise (insurance) premiums," the group said in a statement. The group has been critical of the PBGC.

The public, “should not be led to believe the PBGC is in danger of a bailout and Congress and the Obama Administration should not use this number as a pretext to raise premiums paid by pension plan sponsors,” said ABC President James Klein. “As employer pension plan sponsors have repeatedly pointed out, all pension fund liabilities—including the PBGC’s—are overstated by the historically low interest rates of the past several years. Keeping interest rates low is good policy to stimulate the economy, but it has the perverse effect of making very secure pension funds—and the PBGC’s own situation—appear underfunded.”

To determine the PBGC’s financial situation based on today’s “incredibly low interest rates is irresponsible,” Klein added. “It is no more accurate to assert a large deficit today, than it was to claim an $11 billion surplus about a decade ago when interest rates were high. Neither of these skewed ‘snapshot’ assessments accurately reflects the long-term condition of the pension system, nor the PBGC’s financial situation.”

ABC believes the methodology used by PBGC to calculate its deficit is “seriously flawed” and has never been fully examined by Congress. “Before we can determine PBGC’s true financial position, the assumptions and models used by the agency to calculate its deficit must be scrutinized, especially if PBGC is using them to charge its customers higher premiums,” Klein said.

GAO analysts found that a risk-based system would shift premium costs among DB plans, with financially healthier sponsors paying less and riskier ones paying as much as $257 more per participant, depending on level of risk.

Despite resistance from some pension plan groups, which worry that it could push some companies to stop offering DB plans, the GAO recommended that Congress authorize the revised premium structure, as PBGC officials continue modeling of various premium redesign options, while evaluating the potential impact on plan sponsors.

Despite administrative challenges, “there are merits to a risk-based system, and a lot of agencies do it, said Charles Jeszeck, GAO director of education, workforce and income security, in an interview. “We think it could help keep some plans in place.”

Joshua Gotbaum, director of the Pension Benefit Guaranty Corp., has made it a priority to rethink how the chronically underfunded agency can recalculate its premium-setting formula to reward healthy plans and have riskier ones pay more.

The GAO report was requested by Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee.

In Washington, the talk has turned from the election to the “fiscal cliff” now facing our nation. We have our own cliff in Illinois, and as our pension debt mounts and our credit ratings plummet we are speeding faster and faster toward the edge.

The legislative session in January will be the time to slam on the brakes.

Pension reform won’t be easy. The debate itself has already generated a great deal of anger. A recent poll by the Chicago Tribune shows that the majority of voters blame politicians, not workers, for the state’s pension fiasco. Their anger is well-placed.

According to a recent report by the Civic Committee of the Commercial Club of Chicago, inadequate state funding caused 44 percent of the growth in unfunded pension liabilities from 1996 to 2011. However, it is important to note that the other 56 percent was caused by a combination of lower-than-expected returns on pension fund investments and changes that affected actuarial assumptions, such as improvements in life expectancies and benefit enhancements.

While we can’t get back those skipped pension payments, we can and should work to address other factors within our control that affect Illinois’ $85 billion unfunded public employee pension liability. Of those, one of the most important is ensuring our state’s retirement systems project realistic rates of return on their investments.

A common misconception is that public employees shoulder the burden of funding public pension systems. In fact, investment income accounts for the majority of Illinois state retirement funding.

For instance, according to the State University Retirement System’s 2011 Annual Report, the average SURS employee who retires after 20 years will get back his “share” of his pension fund within three years of retirement. After that, he receives a combination of the state’s contributions and investment income.

So when pension fund investments do not meet expectations, we get into deep water very quickly. While the nation went through the worst recession in modern history, Illinois’ public pension funds were still projecting healthy returns with their heads firmly in the sand. Those projections continue to remain too high today.

For example, the Illinois Teachers Retirement Fund, the state’s largest public pension fund, just reported a return on investment of only 0.76 percent for this last fiscal year despite an 8.5 percent predicted rate of return. We can’t continue down that path. While TRS recently agreed to lower its rate by 0.5 percent, it remains excessively high.

We need to look to best practices from the private sector and industry experts to gauge a realistic rate of return. The Center for Retirement Research at Boston College uses a 5-percent rate of return when evaluating assets held in pension funds. Others have suggested projecting rate of return numbers based on 15-year Treasury bonds — closer to 3 percent.

Public pension fund administrators have historically projected high rates of return from investments because the higher the promised returns, the lower the amount of taxpayer dollars required to satisfy the employer’s contribution. A more accurate picture is necessary to honestly reflect the solvency of the retirees’ benefit payments.

To achieve real reform the General Assembly must also address the structural flaws within the pension systems. The annual Cost of Living Adjustments must be reined in, future benefits adjusted and early retirement policies reevaluated.

Life expectancies have improved. To keep the systems healthy the retirement age and employee contributions must be increased accordingly. The fact that most public retirees recoup the sum of their pension contributions after only a few years suggest the systems are woefully out of balance.

Our legislators’ refusal to restructure and restrain these costs has saddled Illinois taxpayers with the largest debt obligation of all the states. Illinois is on the brink of fiscal insolvency. The public employee pensions cannot be sustained and must be recalibrated for the sake of the pensioners and taxpayers.

Andreas Rinke and Lefteris Papadimas of Reuters report, Greece's lenders fail again to clinch debt deal:

International lenders failed for the second week to reach a deal to release emergency aid for Greece and will try again next Monday, but Germany signaled that major divisions remain.

Euro zone finance ministers, the International Monetary Fund and the European Central Bank were unable to agree in 12 hours of overnight talks in Brussels on how to make the country's debt sustainable. They want a solution before paying the next urgently needed loan tranche to keep Greece afloat.

Several European officials played down the delay, saying the disagreements were technical and a deal would be reached when they meet again on November 26.

But German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door briefing in Berlin that the lenders were split over several key issues including how to define debt sustainability and fill a hole in Greek finances.

"He sees the extension of the debt sustainability goal as one of the main bones of contention. The other is how to cover the Greek financing gap of 14 billion euros through 2014," said one lawmaker who attended Wednesday's meeting of Chancellor Angela Merkel's centre-right Christian Democrats in parliament.

Merkel herself told the lawmakers the gap could be plugged by lowering interest rates on loans to Greece and increasing guarantees provided to the euro zone's temporary EFSF bailout fund, in which Germany would take its share, a participant said.

She suggested a deal could be struck as early as next week but rejected the notion that big, bold actions could solve the debt crisis overnight.

"I believe there are chances, one doesn't know for sure, but there are chances to get a solution on Monday," Merkel told the Bundestag lower house of parliament during a debate.

Greece needs the next 31 billion euro aid tranche to keep servicing its debt and avoid bankruptcy. Its next major repayment is in mid-December.

Athens says it has carried out the tough reforms required in the bailout program but needs more time to reach fiscal targets agreed with its lenders because its economy has continued to shrink.

European governments want to give Greece an extra two years, until 2022, to cut its debt to a sustainable level but the IMF does not agree. The Europeans, led by Germany, are refusing to write off any loans. Both options would make it easier for Greece to meet the targets in the bailout program.

French Finance Minister Pierre Moscovici said agreement was close, echoing overnight comments from Eurogroup chairman Jean-Claude Juncker, who said talks were stuck on technicalities.

"We are a whisker away from a deal. I am very confident we will get there on Monday," Moscovici told Europe 1 radio.

Greece is increasingly frustrated about the repeated delays in releasing the aid and says it has done what is necessary.

"Greece did what it had committed it would do. Our partners, together with the IMF, also have to do what they have taken on to do," Prime Minister Antonis Samaras said in a statement.

"Any technical difficulties in finding a technical solution do not justify any negligence or delays."

Samaras will meet Juncker in Brussels on Thursday and has cancelled a trip to Qatar next week to monitor the talks, a government spokesman said.

The prime minister is under growing pressure from his own coalition allies and the opposition after pushing through deeply unpopular austerity measures that he said were the only way to get more aid to avert bankruptcy.

"Τhe eurozone cannot use Greece as an alibi to justify its weakness in dealing effectively and definitively with the crisis," said Evangelos Venizelos, head of the co-ruling PASOK party. Opposition leader Alexis Tsipras, whose party is rising in polls, said Samaras had lost all credibility.

Investors were disappointed with the news. Greek banking stocks fell nearly 6 percent in morning trade. Most of Greece's next aid instalment has been earmarked to shore up the country's tottering banks.

The euro, European shares and the prices of higher-yielding euro zone debt lost some ground but later recovered some of the losses.

NO WRITE DOWN

A document prepared for the meeting and seen by Reuters showed that Greece's debt cannot be cut from 170 percent of GDP to 120 percent, the level deemed sustainable by the IMF, unless either euro zone member states write off a portion of their loans to Greece or the IMF extends its deadline by two years.

Germany and other EU states say writing down their loans would be illegal. The European Central Bank, a major holder of Greek bonds, has refused to take a "haircut" on its holdings.

Berlin contends a debt haircut would not tackle the roots of Greece's debt problems and would be unfair to other euro zone countries that have taken tough steps to improve their finances.

"It would cost money, it would be a fatal signal to Ireland, Portugal and possibly Spain, as they would immediately ask why they should accept difficult conditions and push through difficult measures...and it would have consequences under budget law," Norbert Barthle, budget spokesman for German Chancellor Angela Merkel's Christian Democrats said.

Without corrective measures, the Eurogroup document said, Greek debt would be 144 percent in 2020 and 133 percent in 2022.

Juncker said after a meeting a week ago that he wanted to extend the target date to reduce Greek debt by two years to 2022, but Lagarde insists the 2020 goal should stand. She is believed to favor euro zone member states taking a writedown.

The European commissioner for economic affairs, Olli Rehn, said on Tuesday that the euro zone should be ready to do more for Greece in the coming years, an apparent nod to the idea of government-sector debt writedowns.

"It's essential now that we take a decision on a set of credible measures on debt sustainability and, at the same time, we need to be ready to take further decisions in the light of future developments," Rehn said.

DEBT BUYBACK

Among the main measures under consideration to bring the debt burden down as rapidly as possible is a buy-back under which Greece would offer to purchase bonds from private investors at a sharp discount to their face value.

Schaeuble told the lawmakers on Wednesday that a debt buyback could be part of the solution.

Several options are under consideration including using about 10 billion euros of money lent by the EFSF to buy back bonds at between 30 and 35 cents on the euro.

There are also proposals to reduce the interest rate on loans already extended by euro zone countries to Greece, to allow a long moratorium on interest payments and lengthen the maturities on loans, all of which would cut the debt burden.

The Greek tragedy/ Euro soap opera continues. Meanwhile, as Europe's leaders dither and delay "bold" actions, things are not getting any better in Greece, Spain, Italy and Portugal. And pretty soon, the euro storm will hit France and Germany.

Economists Costas Meghir, Dimitri Vayanos and Nikos Vettas wrote an excellent op-ed for Bloomberg View, Greece Needs Growth, Not Austerity:

Greece’s economy and society are imploding.

Gross domestic product has declined more than 20 percent since 2008. The unemployment rate has tripled, and now stands at 25 percent, with joblessness among youth at twice that level. Crime is on the rise, as are racist incidents, and ideologies of the extreme right and left are gaining significant support.

Worse, current policies aren’t stemming the economic decline. The new three-party government elected in June has focused its energies on negotiating a new package of austerity measures to meet the conditions set by the so-called troika (the European Central Bank, the European Commission and the International Monetary Fund) for the disbursement of the next tranche of the bailout loan.

The reforms that are the only pathways to growth, such as building a well-functioning public administration and liberalizing markets, are resisted by Greek politicians and vested interests. They are also greatly underemphasized by the troika’s push for austerity.

Unless there is a change of course, Greece is headed for disaster: further declines in GDP, a possible chaotic default on its debt, extremist political parties in power, and isolation from Europe. The European Union also stands to lose because a Greek meltdown would reverse the decades-long process of integration and undermine the credibility of the single currency. And Greece’s creditors won’t get any of their money back.

Debt Reduction

To avoid such an outcome, which could occur soon, Greece’s European partners should devise a long-term strategy with two mutually reinforcing objectives: a drastic reduction of Greece’s debt and a thorough overhaul of the country’s dysfunctional economy.

Greece’s debt is projected to rise to 189 percent of GDP next year, from 129 percent in 2009. This is despite the restructuring of privately held debt and severe austerity measures that have almost wiped out the government’s primary deficit.

Most of the increase in the debt-to-GDP ratio can be attributed to the large decline in GDP. Further austerity measures, designed to generate the large primary surplus necessary to begin reducing the debt, will cause GDP to fall further, making the debt-to-GDP ratio even larger. This will make it impossible for Greece to ever repay its debt in full. Its European partners should recognize this state of affairs and write off a significant fraction of the debt. This would allow Greece to grow and repay the rest.

Writing off Greece’s debt can be done in a way that preserves, and even promotes, incentives for reform. A portion of the officially held debt -- 50 percent or more -- should be set aside to be written off gradually over the next five years or so, on the condition that Greece completes a set of institutional and market changes. The steps include making the public administration more efficient, speeding judicial proceedings, reducing corruption and liberalizing markets.

Achievement of these milestones could be monitored using existing indexes designed by institutions such as the World Bank and the IMF. Such a system would not only promote reform, but would put Greece’s debt, which cannot be repaid in full in any case, to good use.

More generally, the troika should emphasize structural changes rather than the rapid accumulation of a primary surplus. The initial emphasis on reducing the deficit was appropriate given the unsustainably large budget shortfall.

Retaining Talent

However, continued austerity will be counterproductive because it undermines reform. For example, deep salary cuts in the public administration are causing talented personnel to leave, thus impairing an already weak system and worsening the core problem of low public-sector productivity. The agencies in charge of essential tasks such as tackling tax evasion, supervising financial markets and prosecuting white-collar criminals, are often short of funds, equipment and the ability to attract talent. The troika should ensure that those funding needs are met, regardless of the effect on the deficit.

And it is hard to imagine how the Greek politicians and vested interests who have successfully resisted reform could continue to block institutional changes that are the condition for writing off a large part of the debt and averting disaster.

An emphasis on transformation and debt reduction would be welcomed by the Greek population, whose support is necessary for these efforts to succeed. Giving voters the chance to back debt relief in exchange for reforms will dim the appeal of the extremist parties.

The only way forward is to overhaul the Greek economy. For the population, that means recognizing that resisting structural reforms would be suicidal. For its part, the troika should acknowledge that further budget cuts would be catastrophic, and could only lead to a continuing deterioration of the economy and to the severing of Greece’s links with Europe.

(Costas Meghir is a professor of economics at Yale University; Dimitri Vayanos is a professor of finance at the London School of Economics; and Nikos Vettas is a professor of economics at the Athens University of Economics and Business. The opinions expressed are their own.)

Although I agree with the precept that austerity does not work in large doses, Greece still needs to break the financial shackles that have been created by the size of its public service. It is truly sucking the life out of the country in the form of excessive taxation.

Just a few statistics, Canada has a population of 32 million people, GDP of $1.74 trillion, and an area of 9.8 million square kilometers. The size of its civil service is approximately 1.2 million employees (Federal, Provincial, and Municipal).

Greece has a population of 11.3 million, GDP of 0.3 trillion, and an area for 0.1 million square kilometers. Greece's civil service is the same size as Canada`s (1.2 million). By every measure, Greece's civil service is approximately three times larger than it should be. So when a bunch of municipal workers in Thessaloniki attack a German diplomat, it just shows me they need a good slap in the face.

I am very impressed with (Greek Finance Minister) Stournaras. He has done a great job at repositioning Greece. This latest set of austerity measures are now viewed as the last straw (i.e. Greece has done its part and has no more to give). Any further restructuring means debt haircuts on sovereign debt.

He has also convinced Lagarde to step-up and help him lead the rest of the EU away from the self destructive austerity bandwagon. He is working actively in the background and making real progress to restore some of the major investments that were put on hold over the last few years. These private sector investments will restore some confidence in Greece (which is now considered to be toxic by most institutional investors).

So, I am convinced that Greece has hit bottom (unless the government falls). Saying this, the country will just stay at the bottom of the ocean floor endlessly unless it downsizes the civil service and reduces corruption. There is no way that the country can "grow" its way out of these problems.

The British government is considering a new type of pension scheme to address the rapid disappearance of final salary pension schemes and encourage more people to save for their retirement.

Pensions minister Steve Webb said on Thursday he wants to bridge the gap between the two traditional forms of pensions - defined benefit (DB), which promises employees a pension based on their salaries, and defined contribution (DC), which offers no guarantee about how much the pension will finally pay out.

DB has become too costly for most employers, which are struggling to plug deficits and spiralling pension fund liabilities, while DC schemes have been criticised for putting too much investment risk on the individual members.

Known as "defined ambition," the scheme will encourage fewer and larger pension plans, and will share risks equally between employers and employees, Webb said in a paper called "Reinvigorating workplace pensions."

The scheme will offer workers some guarantees from their employers on the size of their pension pot and the rough size of their retirement pay packet.

The government is concerned Britain's ageing population needs to do more to provide for itself in later life. The number of active members of occupational schemes has declined from a peak of 12.2 million in 1967, to 8.2 million in 2011.

"For nearly half a century, we have seen declining numbers of people in workplace schemes - I am determined to reverse this trend and ensure we have pensions that are affordable to employers and attractive to employees," Webb said.

His concern is shared in Europe. The EU's pensions and insurance watchdog wants to set Europe-wide standards for national old-age pension schemes in a bid to boost investment in private pensions.

The government has called for the creation of a third type of pension to bridge the gap between defined benefit and defined contribution schemes.

In a paper titled, Reinvigorating Workplace Pensions, the Department for Work and Pensions outlines proposals for what it calls a “defined ambition” pension plan which aims to share risk between employer and employee.

According to the proposals, DA schemes could offer greater certainty of the final value of one’s pension pot than in DC schemes while not costing as much as DB schemes.

Two methods of implementing this suggested by the DWP include conversion of benefits, where the employer promises a certain level of benefits which are converted to cash if the employee leaves the company; and moneyback guarantees where a saver is guaranteed to get back at least the amount they put in.

Joanne Segars, chief executive of the National Association of Pension Funds, said: “Pensions are now very polarised, particularly in the private sector, with older final salary pensions at one end, and the newer defined contribution system at the other.

“Either the business bears the risk of paying a final salary deal, or the saver carries the risk of not knowing exactly how much they will get.

“There could be a middle way where that risk is shared.”

Peter McDonald, chief actuary at PricewaterhouseCoopers, believes the proposals hold a lot of merit, but the sticking point will be whether companies have the appetite to provide these types of pensions.

He warned that “constant tinkering” with the pension rules has left employers disillusioned and there is little appetite to take on any more risk than they need to.

Mr McDonald said: “The proposal to create a middle ground between defined benefit and defined contribution pensions is a great idea if it can work. The challenge will be persuading employers to move back towards an arrangement where they are tied into a pension promise, as so many have swung away from offering DB schemes.

“The idea of limiting employer’s DB promises to only when the worker is still at the company, could lead to unintended consequences. For example, workers are likely to think twice before leaving a job that offers a DB scheme and this could create an unwelcome staff backlog for many companies.”

Jim Bligh, head of labour market and pensions policy at the Confederation of British Industry, said: “Getting people to save more is essential for a comfortable retirement and the long-term sustainability of our economy, so the government’s efforts are welcome.

“As the pattern of people’s working lives change, new forms of savings for retirement are necessary. Automatic enrolment is a key part of this, but is not enough on its own. Encouraging new approaches to saving above the statutory level is a goal that businesses, government and the financial services sector need to work together on.”

To give the impression that they're doing something resembling work, public relations and marketing types like to indulge in something they refer to as "brainstorming".

This involves sitting around a table putting forward progressively sillier ideas until they arrive at the daftest one they can find before unleashing it on an unsuspecting public.

It seems as if staff at the Department for Work & Pensions have had the brainstorming session to end all brainstorming sessions and it's resulted in something called the "Defined Ambition" pension.

Today's workplace pensions are split between defined benefit (final salary) and defined contribution (money purchase). The former guarantees you a percentage of final salary when you sail off into the sunset. What you get with the latter depends on investment returns. Most of the public sector are on the first type, although ministers would like to change that for everyone other than MPs and top civil servants. Most of the private sector are on the second, or they soon will be. If they've even signed up.

A signature won't be necessary for long under Government plans to automatically enroll people in workplace schemes. But even then the DWP realises that the amount it's telling employees to stash away might be insufficient if it wants to get the state off the hook for retirement provision.

So it would like people to save more, and after a really intense brainstorming session the DWP has decided that it could do this by persuading employers to risk signing up to a sort of "halfway house" pension that offers employees guarantees. Just guarantees that aren't as onerous as traditional final salary schemes, which can break companies that offer them.

A number of options are explored for its inadequately Defined Ambition, but the DWP doesn't address the nub of the problem: Offering guaranteed returns is ruinously expensive.

It is because of this that the DWP's defined ambitions are going to be thwarted. Some employers might have made encouraging noises but they'll run a mile after their finance directors work out the price.

What could make workplace pensions better is to cut down on costs, perhaps by pooling lots of employers' defined contribution schemes. But the DWP is rather light on ways of achieving this.

And anyway, there are strong arguments to suggest that saving through a pension is exactly what a lot of people shouldn't be doing at the moment.

With interest rates low, it makes sense for those who have mortgages to use their spare cash to pay down the capital and to attack their other debts. If they do they'll have ample funds free to save when interest rates and investment returns may both have risen.

As for the DA pension? It sounds very much like a way of trying to sugar coat (or avoid) an unpalatable fact. Sort of like calling radiation "magic moonbeams".

The best way, the only way, of ensuring people have better pensions and are thus less reliant on the state is to tell them the truth: They can chose to work for longer or they can save more. It really is that simple. Trying to sweeten the pill with silliness like a new sort of pension added to an already horribly complicated mix won't change that.

Boeing Company told union negotiators that it plans to deny pension survivor benefits to married same-sex couples in Washington because federal law does not require that it provide the benefit.

The multinational aerospace and defense corporation indicated its position in talks about retirement benefits Wednesday, according to a union source who spoke with The Stranger. The source said the company planned to use a “loophole” to avoid providing equal pension benefits, which are governed by federal, not state, law.

Boeing joined other major corporations with ties to Washington in advocating for the passage of the marriage equality law, which voters approved this month in Referendum 74. Same-sex couples will be able to legally marry in the state this December. Some of the other business partners in the campaign included Amazon, Google, Microsoft, and Nike.

However, Boeing did not join an amicus brief filed last year by nearly 50 corporations in federal court in Massachusetts against the Defense of Marriage Act, which prohibits the federal government from recognizing same-sex civil marriages soon to be legal in nine states and the District of Columbia following this month’s election results.

A spokesman for Boeing refuted any suggestion of discrimination in company policy but did not directly address the question of whether the company had refused the pension benefits at the negotiating table, according to The Stranger. The company later issued a statement saying, “Boeing is taking a closer look at how R-74 might impact company policies once it takes effect in December.”

In this month's elections, Washington state, the land of Starbucks and grunge, elected to legalize same-sex marriage. Washington is also home to Microsoft and Bill Gates (who by the way, gave a total of $600,000 to the Washington fight for same-sex marriage) and a bevy of companies and other executives.

One of these big companies is Boeing, the engineering company that makes planes and other cool stuff like "drones that behave like swarms of insects."

The company is in the middle of contract negotiations with its bargaining with the union that represents its engineers, technicians, and clerical workers, SPEEA. Things are are not going so well. The union just rejected the company's second proposal and a strike-authorization vote is now looming in the distance.

Boeing is also getting some negative press over reports that they plan to refuse equal pension benefits to married same-sex couples. In Boeing's ideal world: when an old dorky gay engineer dies, his husband will have to scrape by on his own just to get by.

Ray Goforth, the executive director of Boeing's union, told The Stranger that Boeing is claiming that "pensions are governed by federal law, which doesn't recognize same-sex marriage, thereby trumping the state law on the matter."

This is why the supreme court needs to rule on Prop 8 already. It'll decide if companies can continue to skate around laws, or if they should just shut up and give fair pay to their loyal employees. Hoping for the latter here obviously.

During the third quarter of 2012, the unemployment rate for people with disabilities showed a notable increase to 13.7 percent, from 12.9 percent in the previous quarter. Applications for Social Security Disability Insurance (SSDI) benefits continued to stabilize, according to a study by Allsup, a nationwide provider of Social Security disability representation and Medicare plan selection services.

People with disabilities continue to experience higher levels of unemployment than those without disabilities.The Allsup Disability Study: Income at Risk reveals that people with disabilities experienced an unemployment rate 73 percent higher than those without disabilities, with third-quarter rates at 13.7 percent and 7.9 percent, respectively. Allsup has conducted this quarterly study since the first quarter of 2009. The full study is available at http://www.allsup.com/Portals/4/allsup-study-income-at-risk-q3-12.pdf.

The Allsup Disability Study: Income at Risk shows that 726,026 people with disabilities applied for SSDI during the third quarter of 2012, down slightly from the 731,817 who applied in the previous quarter. The third-quarter figure is less than 2 percent lower compared to third-quarter 2011, when 737,468 applications were filed.

To date in 2012, nearly 2.2 million individuals who were no longer able to work due to a disability applied for SSDI. An estimated 1.8 million SSDI claims are pending with an average cumulative wait time of more than 800 days, according to Allsup’s analysis of the Social Security disability backlog.

Tricia Blazier, Allsup’s personal financial planning manager, said individuals applying for Social Security disability benefits need to act quickly. “Given the backlog, qualified candidates need to apply as soon as possible to minimize the financial impact of a long-term disability,” she said. “Social Security disability experts such as Allsup can help individuals to know if they meet the eligibility requirements and help with their claim for Social Security benefits.”

A delay in applying for SSDI benefits can lead to a financial crisis for many families.“If you’ve experienced a work-stopping disability, now is the time to start planning financially,” Blazier said. “Social Security disability benefits tend to be significantly lower than work income, but they are an important step in helping families ease the hardship faced when a breadwinner is no longer able to work due to a disability.”

The hedge fund industry is expected to see a wave of new launches in the next year by traders who have lost their jobs at investment banks or who have left in search of better pay.

The start-ups are expected despite the unimpressive performance of other new ventures and questions about where they will find new capital to finance them.

New rules banning U.S. banks or those with U.S. subsidiaries from risky but potentially profitable proprietary trading are also encouraging some traders to make the move.

Mitt Romney's U.S. presidential election defeat means little chance of the wider regulatory bill being repealed, as he had promised.

"If you consider what's going on for (banks) at the moment from a compensation point of view, plus the increase in regulation and impediments to expressing risk...then working at a hedge fund looks like a compelling option at the moment," said David Barenborg, a portfolio manager at BlackRock (BLK.N) Alternative Advisors.

Among the most prominent names who have tried to launch this year are JP Morgan's Mike Stewart and Deepak Gulati, Citi's former head of proprietary trading Sutesh Sharma, and Nomura's Borut Miklavcic, who gained approval from Britain's Financial Services Authority for his LindenGrove Capital this month.

Other traders away from the proprietary businesses, such as so-called "flow" traders, who engage in market-making transactions for clients, are also leaving banks.

Antoine Cornut, a former head of flow-credit trading for Deutsche Bank, is setting up his own credit-focused hedge fund Camares Capital, two people familiar with the launch said.

Investment banks across the globe have slashed hundreds of thousands of jobs since a market peak in 2007, as tougher regulations and weak dealmaking force them to cut costs. UBS said last month it was winding down its fixed income business and cut 10,000 jobs.

Banks are also under pressure to cut bonuses and benefits, reducing the incentive to stay on at a bank with the promise of a more lucrative job elsewhere.

PROP DESKS SHUTTING

Proprietary trading, or trading with the banks own money, can closely resemble trading in the hedge fund business and has turned out big profits before the financial crisis.

But the U.S. Dodd-Frank bill, introduced under President Barack Obama, includes a ban, known as the Volcker rule, on proprietary trading because it is risky.

Under that rule, U.S. banks or banks with U.S. subsidiaries or branches - most major European and Asian lenders - were banned from betting with their own capital from July this year, but given until 2014 to comply.

Many banks were quick to dismantle their "prop" desks ahead of the rule, but others have taken a wait-and-see approach and may now have to make big cuts. This will likely mean several new launch attempts in the first quarter of next year.

"We will definitely see some new spin-outs over the coming year as most banks continue to plan ahead," said Daniel Caplan, European Head of Global Prime Finance at Deutsche Bank, which has worked with several of the major launches to come out of banks since the 2008 financial crisis.

He expects the next year will herald more start-ups in credit - one of the top performing and most popular sectors in 2012 - because many of the big ones so far have focused on trading equities.

The average credit hedge fund is up almost 9 percent this year, beating the average hedge fund's 4.3 percent, data from industry tracker Hedge Fund Research shows.

CAPITAL QUESTION

There is no guarantee traders will be able to raise sufficient capital to launch their own funds, however.

The bulk of the money flowing into the industry since the financial crisis has gone straight to the biggest names, leaving start-ups struggling.

Bank traders have instead found themselves snapped up by the big, established hedge funds - an offer some who fail to get planned launches off the ground will likely take.

Moreover, many of the biggest new ventures have failed to make their backers money.

Edoma Partners, set up by a former senior proprietary trader at Goldman Sachs and one of the most hyped launches since the financial crisis, said earlier this month it was shutting down after just two years, hit by poor returns and investor exits.

Brevan Howard Asset Management LLP, Europe’s second-biggest hedge fund, is rebuilding in the U.S. after largely pulling out during the 2008 financial crisis.

The $39 billion firm, run by billionaire Alan Howard, is seeking traders for its New York office after adding 14 people to its U.S. unit in the past five months, four people familiar with the matter said. Among those recently hired by London-based Brevan Howard are Don Carson, who ran Credit Suisse Group AG’s U.S. dollar swaps desk, Josh Bertman, a mortgage trader from the Zurich bank, and strategists from Deutsche Bank AG.

Brevan Howard, whose U.S. unit expanded to 16 people last month from two in June, is hiring as Wall Street banks shrink or eliminate trading desks and hedge funds struggle to profit from Europe’s sovereign-debt crisis and other global economic trends. The firm, whose main fund is on track for its second-worst year, is expanding to gain more insight into U.S. markets, attract traders and give employees the opportunity to relocate to New York, said one person with knowledge of the matter, who like the others asked not to be named because the information is private.

“Expanding in New York at this time is a smart move given how there’s a lot of blood on the street as banks and hedge funds cut talent,” said Gustavo Dolfino, president of New York- based recruitment firm WhiteRock Group LLC. “Some of the hot strategies right now include global macro and commodities.”

A spokesman for Brevan Howard declined to comment.

Seeking Talent

Brevan Howard is a macro hedge fund, which seeks to profit from broad economic trends by trading everything from currencies to commodities. Such funds posted an average 0.9 percent loss this year through October, according to data compiled by Bloomberg.

Brevan Howard’s Master Fund, which has never had a losing year since its 2003 inception, returned about 1.8 percent through Nov. 9, according to a person briefed on the returns. Its worst year on record was a 1 percent gain in 2010.

Carson was hired last month, and Bertman is set to join after leaving Credit Suisse in October, people with knowledge of the hires said earlier this month. Giles Coppel, a former trader at hedge fund Tudor Investment Corp., is listed as the head of trading in a registration filed by Brevan Howard’s U.S. unit.

Vinay Pande, who was chief investment adviser at Deutsche Bank, was scheduled to join the hedge fund’s New York office last month, heading a team of three researchers. David Gilbert, an attorney in Brevan Howard’s London office, became chief operating officer of the U.S. subsidiary in September, filings show.

Midtown Office

The firm also hired Shelley Goldberg, a former commodities strategist at Nouriel Roubini’s Roubini Global Economics, said another person with knowledge of the matter.

Worldwide, Brevan Howard employs about 430 people, of which 110 are directly involved in investing. Apart from London and Geneva, Brevan Howard has offices in Hong Kong, Tel Aviv, Washington, Sao Paulo and St. Helier in the island of Jersey, according to its website. Its New York offices are on Madison Avenue, in midtown Manhattan.

Howard, 49, whose personal wealth was estimated at 1.4 billion pounds ($2.2 billion) by the Sunday Times in April, relocated in 2010 to Geneva from London, joining other hedge- fund managers who moved to Switzerland after the U.K. government announced plans to raise taxes on top earners.

Founders’ Departure

The first part of Brevan Howard’s name is made up of the initials of founding partners. Chris Rokos, the “R” in Brevan, left the firm in August. James Vernon, the former chief operating officer and the “V”, left last year, and Jean- Philippe Blochet, the “B”, left in late 2009. The remaining co-founders are Howard and Trifon Natsis.

Brevan Howard’s U.S. operations were cut back in 2008, and many of those who worked in the U.S. were given the option of moving to London, according to two former employees. The downsizing included an office in Connecticut, which employed former traders from RBS Greenwich Capital Markets who focused on interest rate products, including U.S. government bonds and derivatives, for the firm’s master fund, another former employee said.

Brevan Howard’s main investment-advisory unit claimed an exemption from U.S. hedge-fund regulation in March of this year and formed a new U.S. unit a month later that is subject to oversight by the Securities and Exchange Commission. BlueCrest Capital Management LLP and Winton Capital Management Ltd., the third-biggest and fourth-biggest European hedge funds, are registered with the SEC. Man Group Plc, Europe’s largest hedge fund, has had a registered U.S. unit since 2000.

U.S. Unit

According to a June 8 filing with the SEC, Brevan Howard “envisaged” that the U.S. unit registered with the SEC would initially manage about $300 million on behalf of the master fund run out of London. The unit, Brevan Howard US Investment Management LP, was slated to open in July, according to the document. In August, Brevan Howard’s U.S. unit amended its registration to say that the net assets totaled $800 million.

Brevan Howard, which is regulated in the U.K. by the Financial Services Authority, previously spun off a mortgage trading operation run in the U.S. by David Warren, a former managing director and chief operating officer in Morgan Stanley’s mortgage-backed securities department.

Warren in March 2009 set up his own firm under the name DW Investment Management LP. The firm manages money exclusively for Brevan Howard partnerships, including the Brevan Howard master fund and the Brevan Howard Credit Catalysts fund, and is on the same floor of a New York office building as Brevan Howard’s U.S. unit. DW’s assets under management totaled almost $4 billion as of March 15, according to a government filing.

‘Friendliest Market’

While Warren controls investment decisions, Brevan Howard’s compliance department monitors DW’s daily trading activity, according to documents filed with the SEC. Brevan Howard also establishes all arrangements for the custody of securities in funds managed by Warren’s firm, and has the ability to prescribe risk mandates, the filing says.

Brevan Howard had also registered a brokerage unit in New York that helps raise money from American investors. About 64 percent of the money invested by pension plans and other institutional investors in hedge funds comes from North America, while Europe accounts for 24 percent, according to Preqin Ltd., a London-based research firm.

The firm is currently looking to the U.S. to raise money for a three-year-old currency fund. It filed an Aug. 9 private- placement notice with the SEC to raise an unspecified amount of assets for its Macro FX fund. The filing allows a hedge fund to raise money without going through the SEC’s registration process for securities, based on the regulator’s view that potential investors are sophisticated and able to fend for themselves.

“Fundraising is tough at the moment but easier in the U.S. than the rest of the world,” said Daniel Celeghin, a partner at Casey Quirk & Associates LLC, a Darien, Connecticut-based firm that advises asset managers. “U.S. investors are the friendliest market to hedge funds right now.”

Some of the world’s biggest private-equity firms have stepped up their presence in Southeast Asia this year, eager to benefit from the region’s growth. But even as the value of transactions surges, the region remains a tough place to make a deal.

One key reason: Valuations are rising quickly as competition heats up for assets. Companies, particularly those in Japan and Korea, are looking there for growth, more so as growth stalls in India and China, say bankers and deal makers. These buyers are often happy to pay more than private-equity investors.

“Our competition is very rarely private equity. Our real competition is strategic buyers,” as firms in similar industries are called, said Rodney Muse, managing partner of Kuala Lumpur-based Navis Capital.

Private-equity transactions in Southeast Asia have totaled $3.6 billion so far this year, up from $1.3 billion last year, according to data from the Centre for Asia Private Equity. This year’s figure includes a $1.7 billion buyout of snack-food franchises KFC Holdings (Malaysia) and QSR Brands by European private-equity firm CVC Capital Partners, which hasn’t yet closed.

Last month, U.S. private-equity firm Kohlberg Kravis Roberts opened its Singapore office, with co-founder Henry Kravis boldly announcing plans to invest more than $1 billion in Southeast Asia over the next five years.

Blackstone Group LP also opened a Singapore office earlier this year, while Carlyle Group LP recently closed its first Southeast Asia deal, an investment in Indonesian telecom towers operator PT Solusi Tunas Pratama for between $100 million to $150 million, according to people with knowledge of the deal.

“Strategic buyers can sometimes afford a little bit more given the synergies they expect to achieve. That has led to some aggressive bidding for assets,” said Sebastien Lamy, a partner at consulting firm Bain & Co. in Singapore.

High valuations in the stock markets could also be driving pricing expectations. Both stock markets in the Philippines and Thailand are up more than 20% year-to-date, and Indonesia is up 13%, for example. In contrast, China’s main indices are in negative territory for the year.

“Sellers’ expectations [in Southeast Asia] have become very high,” Navis Capital’s Mr. Muse said.

Some private-equity firms have benefited from the demand for Southeast Asian assets, by selling investments to strategic buyers at a hefty profit. Navis sold Singapore-based King’s Safetywear Ltd., a maker of protective shoes for industrial uses, late last year to U.S. conglomerate Honeywell International for $338 million. It had bought the company in 2008 for S$97.1 million ($79.2 million).

Apart from intense competition, one of the most common complaints is that it remains difficult to find deals, not least because of the dominance of large, family-owned conglomerates in Southeast Asia’s economies. The number of smaller startups are low in comparison.

“The entrepreneurial segment of the economy [in Southeast Asia] is still small,” Sigit Prasetya, managing partner for Southeast Asia at CVC, said on a panel at the Asian Venture Capital Journal conference in Hong Kong last week. He added that because these large business groups have great access to capital from banks, they are also asking what else private-equity can bring beyond just capital.

That may be starting to change, as the second generation of these families is more receptive toward the operational expertise that private-equity firms can offer, said John van Oost, managing partner of Singapore-based, Yishan Capital Partners, a real-estate investment firm that specializes in investing in Southeast Asia.

For example, Yishan recently formed a joint venture with Indonesian industrial group Rodamas Group, whose businesses range from chemicals to food, to manage and develop logistics facilities in the country.

Blackrock, the world’s largest asset manager, said there is rising demand from Asia-Pacific investors for less liquid hedge-fund investments as European and U.S. financial institutions clean up their balance sheets.

More than half of the money BlackRock’s fund of hedge funds division drew from regional investors since January 2011 is dedicated to longer-term, special-situations investments, such as direct lending to companies that need cash and mortgage- backed securities, said Joseph Pacini, the Asia-Pacific head of Alternative Investment Strategy Group. Two-thirds of the allocation was made in the past year as macroeconomic concerns eased, he said.

“Asian investors today have a lot of cash and capital,” Pacini said in an interview in Hong Kong. “Over the last year, we have seen a noticeable shift from nervousness about investing to interest in where the markets are, what’s the dislocation and where we should be focusing now.”

U.S. and European financial institutions may have to shrink their balance sheets by another $3 trillion to comply with tighter regulation after the global financial and European debt crises, said Pacini. Asian investors who have survived the 1997- 1998 Asian financial crisis and escaped the brunt of the latest global turmoil are eying opportunities, including in commercial real estate and aviation financing, to boost returns amid low interest rates, he said.

Alternative Investments

BlackRock’s alternative investment arm managed $110 billion in assets globally as of September in private equity, real estate, hedge funds and infrastructure. BlackRock Alternative Advisors, the fund-of-hedge-funds unit, oversaw $18.7 billion as of early October, with about half of that raised from Asia- Pacific clients, Pacini said.

Large European banks may shrink their balance sheets by as much as 2 trillion euros ($2.6 trillion), or 7 percent of their assets, by 2013, Pacini wrote in a paper last month citing government and International Monetary Fund data. That compares with the $250 billion of assets sold off or cut from balance sheets during the savings and loans crisis in the U.S. in the late 1980s, and the $350 billion during the Asian debt crisis of the 1990s, he said.

Trophy Assets

While trophy assets in some markets have been sold, further deleveraging is expected, Pacini said.

BlueMountain Capital Management LLC, an $11 billion New York-based manager, said it raised $1.5 billion, double its target, for a fund that invests in structured corporate credit, including asset-backed securities and less-often-traded corporate credit, tapping investor demand for higher returns amid near-zero interest rates and bond yields as governments around the world try to stimulate economic growth.

The Lyxor Distressed Securities Index returned 6.3 percent in the first 10 months, while the Lyxor Special Situations Index gained 3.3 percent. Both outperformed the 1.6 percent advance of the Lyxor Hedge Fund Index in the same period.

Asian institutions have indicated interest in investing in such assets through BlackRock funds, tailor-made accounts or alongside BlackRock funds, Pacini said. BlackRock has allocated several billions of dollars to managers, often small and specialized, that invest in such assets or through co- investments with them, he added, declining to give a more specific number as it’s confidential.

Aviation Financing

The fund manager is also looking to fill a void left by European banks such as Societe Generale SA and BNP Paribas SA that are winding back aviation financing even as aircraft deliveries increase, Pacini said. Aircraft deliveries this year may rise 23 percent to $95 billion from a year earlier, with aviation bank financing to slide 4 percentage points to 21 percent, London-based trade journal Flightglobal reported in January, citing a Boeing Co. forecast.

There is an estimated real estate funding gap of $86 billion in Europe and $31 billion in the Asia-Pacific region this year and next even after insurers and fund managers have stepped up to meet some of the refinancing needs, according to a report this month by property broker DTZ Holdings Plc.

“There’s refinancing that needs to happen because a lot of the commercial mortgage-backed securities and debt done in 2006, 2007 are coming due,” said Pacini.

Kwong was part of the core investment team at Senrigan, an Asia-focused event-driven hedge fund that started in 2009 with seed capital from US alternative asset manager Blackstone Group. Senrigan, however, has racked up big investment losses over the past two years.

The executive's departure comes at a tough time for the Asian hedge fund industry which has seen investors pull out a net $1.35 billion through October this year, according to data from industry tracker Eurekahedge.

However, some Asian spinouts from global hedge funds such has Lone Pine and Perry Capital have collected hundreds of millions of dollars as investors still continue to back fund managers with a proven track record.

Kwong, who worked with Senrigan boss and one of Asia's best-known hedge fund managers Nick Taylor for the last eight years, is setting up The Aria Group, a family office that will run multiple investment strategies, one of the sources said.

China is in a historic period of transition and is evolving to become a more open society, according to David Rubenstein, co-founder of the global private equity fund The Carlyle Group.

Rubenstein said China's fast growing population, along with the political transition set to take place under new president Xi Jinping, marks a turning point for a nation that in the past has tried to remain insular.

"It's impossible to take 1.3 billion people and keep them closed to the rest of the world," Rubenstein said Thursday at the Washington Ideas Forum. "You're not going to be able to go back to the system you had before."

Rubenstein, who has overseen billions of dollars of investment in China, also said the country is ripe with entrepreneurship. "There are more entrepreneurs per capita then there are anywhere else in the world," Rubenstein said of China. "In the business world, they are as determined to be successful as people are here."

Rubenstein also called on Congress to solve the fiscal cliff. He said doing nothing would cause harm to the U.S. economy and send a signal of incompetence to the rest of the world. "They know what they're supposed to do. They know they have to solve the fiscal cliff but they don't know how to do it," Rubenstein said of Congress. "How can this country be the leading country in the world when we can't solve these problems?"

Rubenstein added that he thought Democrats and Republicans would come to an agreement but that it would not solve long-term issues. "I think they will come up with a one-year bargain. There will be something for everybody," Rubenstein said. "I don't think it will be very pretty."

After the fiscal cliff is solved, Rubenstein says businesses will better be able to make decisions for their future. "What business people want is certainty," he said. "Just tell us what the rules are and we'll figure out how to deal with them."

Rubenstein, a noted philanthropist, also said that Americans, while the most generous people in the world in terms of money given to charities, could give more.

"The implication is that you have to be a billionaire to be a philanthropist," he said. "I want everybody to feel they should give some of their time or money. More people at all levels of income should do it."

The Greek government and financial markets were cheered on Tuesday by an agreement between euro zone finance ministers and the International Monetary Fund to reduce Greece's debt, paving the way for the release of urgently needed aid loans.

The deal, clinched at the third attempt after weeks of wrangling, removes the biggest risk of a sovereign default in the euro zone for now, ensuring the near-bankrupt country will stay afloat at least until after a 2013 German general election.

"Tomorrow, a new day starts for all Greeks," Prime Minister Antonis Samaras told reporters at 3 a.m. in Athens after staying up to follow the tense Brussels negotiations.

After 12 hours of talks, international lenders agreed on a package of measures to reduce Greek debt by more than 40 billion euros, projected to cut it to 124 percent of gross domestic product by 2020.

In an additional new promise, ministers committed to taking further steps to lower Greece's debt to "significantly below 110 percent" in 2022.

That was a veiled acknowledgement that some write-off of loans may be necessary in 2016, the point when Greece is forecast to reach a primary budget surplus, although Germany and its northern allies continue to reject such a step publicly.

Analyst Alex White of JP Morgan called it "another moment of ‘creative ambiguity' to match the June (EU) Summit deal on legacy bank assets; i.e. a statement from which all sides can take a degree of comfort".

The euro strengthened, European shares climbed to near a three-week high and safe haven German bonds fell on Tuesday, after the agreement to reduce Greek debt and release loans to keep the economy afloat.

"The political will to reward the Greek austerity and reform measures has already been there for a while. Now, this political will has finally been supplemented by financial support," economist Carsten Brzeski of ING said.

PARLIAMENTARY APPROVAL

To reduce the debt pile, ministers agreed to cut the interest rate on official loans, extend the maturity of Greece's loans from the EFSF bailout fund by 15 years to 30 years, and grant a 10-year interest repayment deferral on those loans.

German Finance Minister Wolfgang Schaeuble said Athens had to come close to achieving a primary surplus, where state income covers its expenditure, excluding the huge debt repayments.

"When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt," Schaeuble said.

Eurogroup Chairman Jean-Claude Juncker said ministers would formally approve the release of a major aid installment needed to recapitalize Greece's teetering banks and enable the government to pay wages, pensions and suppliers on December 13 - after those national parliaments that need to approve the package do so.

The German and Dutch lower houses of parliament and the Grand Committee of the Finnish parliament have to endorse the deal. Losing no time, Schaeuble said he had asked German lawmakers to vote on the package this week.

Greece will receive 43.7 billion euros in four installments once it fulfills all conditions. The 34.4 billion euro December payment will comprise 23.8 billion for banks and 10.6 billion in budget assistance.

The IMF's share, less than a third of the total, will be paid out only once a buy-back of Greek debt has occurred in the coming weeks, but IMF Managing Director Christine Lagarde said the Fund had no intention of pulling out of the program.

Austrian Chancellor Werner Faymann welcomed the deal but said Greece still had a long way to go to get its finances and economy into shape. Vice Chancellor Michael Spindelegger told reporters the important thing had been keeping the IMF on board.

"It had threatened to go in a direction that the IMF would exit Greek financing. This was averted and this is decisive for us Europeans," he said.

The debt buy-back was the part of the package on which the least detail was disclosed, to try to avoid giving hedge funds an opportunity to push up prices. Officials have previously talked of a 10 billion euro program to buy debt back from private investors at about 35 cents in the euro.

The ministers promised to hand back 11 billion euros in profits accruing to their national central banks from European Central Bank purchases of discounted Greek government bonds in the secondary market.

BETTER FUTURE

The deal substantially reduces the risk of a Greek exit from the single currency area, unless political turmoil were to bring down Samaras's pro-bailout coalition and pass power to radical leftists or rightists.

The biggest opposition party, the hard left SYRIZA, which now leads Samaras's center-right New Democracy in opinion polls, dismissed the deal and said it fell short of what was needed to make Greece's debt affordable.

Greece, where the euro zone's debt crisis erupted in late 2009, is proportionately the currency area's most heavily indebted country, despite a big cut this year in the value of privately-held debt. Its economy has shrunk by nearly 25 percent in five years.

Negotiations had been stalled over how Greece's debt, forecast to peak at 190-200 percent of GDP in the coming two years, could be cut to a more bearable 120 percent by 2020.

The agreed figure fell slightly short of that goal, and the IMF insisted that euro zone ministers should make a firm commitment to further steps to reduce the debt if Athens faithfully implements its budget and reform program.

The main question remains whether Greek debt can become affordable without euro zone governments having to write off some of the loans they have made to Athens.

Germany and its northern European allies have hitherto rejected any idea of forgiving official loans to Athens, but European Union officials believe that line may soften after next September's German general election.

Schaeuble told reporters that it was legally impossible for Germany and other countries to forgive debt while simultaneously giving new loan guarantees. That did not explicitly preclude debt relief at a later stage, once Greece completes its adjustment program and no longer needs new loans.

But senior conservative German lawmaker Gerda Hasselfeldt said there was no legal possibility for a debt "haircut" for Greece in the future either.

At Germany's insistence, earmarked revenue and aid payments will go into a strengthened "segregated account" to ensure that Greece services its debts.

A source familiar with IMF thinking said a loan write-off once Greece has fulfilled its program would be the simplest way to make its debt viable, but other methods such as forgoing interest payments, or lending at below market rates and extending maturities could all help.

German central bank governor Jens Weidmann has suggested that Greece could "earn" a reduction in debt it owes to euro zone governments in a few years if it diligently implements all the agreed reforms. The European Commission backs that view.

The ministers agreed to reduce interest on already extended bilateral loans in stages from the current 150 basis points above financing costs to 50 bps.

Argentina has appealed against a US court order forcing it to pay $1.3bn (£810m) to hedge funds holding debts from the country's 2001 default.

The economy minister in Buenos Aires said the US ruling was an "attack on sovereignty" as it filed an appeal in New York on Monday.

Last week, US district judge Thomas Griesa ordered Argentina to pay out $1.3bn to the tiny minority of bondholders who refused to sign up to a hard-fought writedown of its debts after the country's sovereign debt default a decade ago.

About 93% of bondholders agreed to a restructuring that gave them back about 30p in the pound, but some hedge fund creditors refused the deal and are pursing Argentina through courts across the world. Argentina has refused to pay the hedge funds, which it describes as "vultures".

The economic ministry said Griesa's ruling "shows ignorance of the laws passed by our Congress".

Earlier on Monday, investors holding $1bn-worth of restructured Argentine debt filed an emergency motion in a US court to also fight the ruling, which they fear could prevent payment on their bonds and lead to a fresh default.

They are concerned that if Argentina is forced to pay the so-called vulture funds it will reduce the amount of money the country has available to its other lenders, pushing it into a technical default on its existing $60bn of debts.

In his ruling last week, Griesa said: "Argentina owes this and owes it now."

"In accepting the exchange offers of 30 cents on the dollar, the exchange bondholders bargained for certainty and the avoidance of the burden and risk of litigating," he said. "Moreover, it is hardly an injustice to have legal rulings which, at long last, mean that Argentina must pay the debts which it owes. After 10 years of litigation this is a just result."

The judge made his ruling following claims led by Elliott Capital Management and Aurelius Capital Management.

The bond party is over – this according to one of Canada’s biggest pension fund managers, which plans to cut back significantly on its fixed income holdings.

“Over the last three to four years returns on fixed income have been amazing – almost equity-like,” Michael Sabia, chief executive of the Caisse de dépôt et placement du Québec, told the Financial Times.

“Our view on this is that the party is over, that therefore the eight to nines [per cent yield] we were earning are going to be replaced with twos, threes, maybe fours,” Mr. Sabia said.

The Caisse de dépôt manages more than $160-billion in private and public pension and insurance funds in Quebec. It is a big investor in British infrastructure, including a 13.3 per cent stake in Heathrow Airport and a 50 per cent stake in South East Water.

Mr. Sabia said the Caisse de dépôt will lower its $58.8-billion allocation to fixed income by $7-billion to $8-billion next year “as a starting point.” The money will be deployed to finance investments in less liquid assets such as private equity, real estate and infrastructure. The fund’s overall portfolio weighting in such alternative assets will change from a quarter today to 34 per cent.

The pension fund’s sentiment echoes that of GMO, the $104-billion (U.S.) Boston-based asset manager, which said it had “given up” on long-dated sovereign debt. This despite investors continuing to shovel billions into sovereign and corporate bonds, fuelling a rally in bond markets that some commentators warn has approached bubble proportions.

The Caisse de dépôt’s reallocation from fixed income is part of bigger shift away from a relative return approach – which involves benchmarking investments against indices – to focus on an absolute return model.

“I look at the returns that can be made either off the dividend or capital appreciation and I compare that with what we might earn in a fixed income portfolio and for me, that’s a good trade-off,” Mr. Sabia said.

“I’d rather put the money to work there and live with the notional increase in risk [than] from, say, a fixed income portfolio,” he added.

Diminishing returns from bond markets have prompted other institutional investors to question the asset class.

“Looking at valuation, 10-year bond yields in the U.K. and in the U.S. are at historic lows . . . suggesting bond markets have never been as overvalued as they are today,” said Mouhammed Choukeir, chief investment officer at Kleinwort Benson.

The California Public Employees’ Retirement System is seeking to sue bankrupt San Bernardino over missed pension payments, the second potentially precedent- setting fight the fund picked with a California city this year.

San Bernardino can’t use U.S. bankruptcy law to justify its failure to make at least $5 million in payments, Calpers, the biggest U.S. public-employee pension fund, said in court papers filed Nov. 27. The motion relies on arguments the fund is also making in the bankruptcy of Stockton, California, and may be a warning to other cities struggling with high pension costs, said James E. Spiotto, a bankruptcy attorney and partner at Chapman & Cutler LLP in Chicago.

“You don’t know if they are trying to send a message to others through San Bernardino, which is to be respected,” Spiotto said yesterday in a telephone interview.

Other cities and municipal bond investors may fear that Calpers’s strategy will lead to long and costly legal battles that leave less money to pay for essential services such as police and fire protection while driving up borrowing costs, Spiotto said.

Bondholders would be penalized if Calpers gets its way, Matt Fabian, managing director of Municipal Market Advisors, a research firm in Concord, Massachusetts, said.
Statutory Liens

“The issue is, do Calpers obligations supersede unsecured bondholders?” Fabian said in a telephone interview. “There’s an awful lot of unsecured bondholders in California. If you put pension obligations to Calpers as secured and senior to unsecured debt, in effect those bonds have been downgraded.”

In the Stockton and San Bernardino cases, Calpers is arguing that pension contributions must be made ahead of payments to other creditors because they are so-called statutory liens, or debts that state law requires to be paid. Bondholders and other creditors that oppose Calpers argue that pension debt is a contractual obligation like any other.

San Bernardino City Attorney James Penman and Gwendolyn Waters, a city spokeswoman, didn’t return calls seeking comment on the court filing.

Since initiating bankruptcy proceedings, San Bernardino has skipped $6.9 million in payments to Calpers, the pension fund said in an e-mailed statement. The $241 billion fund has continued to pay pensions to the city’s retirees, according to the statement.

Spending Plan

“This legal action would allow us to collect the employer contributions from San Bernardino, which are required by state law, to maintain the integrity of the San Bernardino pension plan for its public employees and retirees and to avoid needless procedural disputes and additional legal costs,” Anne Stausboll, Calpers chief executive officer, said in the statement.

Earlier this week, San Bernardino passed a provisional spending plan for use in bankruptcy. Under the so-called pendency plan, the city would put off paying $13 million to California’s retirement system and $3.4 million for pension bonds.

The city has $90 million of outstanding debt repaid from the city’s general fund, according to an Aug. 29 council report. Its unfunded pension liability is about $143 million, according to court papers. To help curb spending, the city has fired school crossing guards, closed three branch libraries and cut 41 non-uniformed police jobs, the city said in budget memos.

Legal Action

The County of San Bernardino voted to authorize any legal action that may be needed to collect $1.5 million in landfill fees owed by the city, county spokesman David Wert said. The county, which has about 2 million residents, is run by a separately elected board of supervisors who represent the unincorporated areas of the region.

The Stockton fight is further along and may set a precedent for how Calpers payments are treated, Spiotto said. That decision will be made by the federal judge overseeing Stockton’s bankruptcy case in Sacramento.

Calpers also may set a legal precedent in the San Bernardino case if it wins the right to fight the city outside bankruptcy court, Kenneth N. Klee, who helped rewrite Chapter 9 of the U.S. Bankruptcy Code in the 1970s as a lawyer working for Congress, said in an e-mail. Once a city or private company enters bankruptcy, creditors can’t seize property or sue for payments without permission from the judge overseeing the case.

Exemption Claim

Calpers claims that it is exempt from that requirement because it is a governmental agency. The fund may have a hard time winning that argument because it isn’t exercising traditional police powers, Klee and Spiotto said.

“If participants in the Calpers system fail to timely make payments, then Calpers will be unable to provide an actuarially sound retirement system,” the pension fund said in a filing in U.S. Bankruptcy Court in Riverside, California.

In August, San Bernardino became the third California city to file bankruptcy in less than three months. The city of more than 200,000 people lies about 60 miles (97 kilometers) east of Los Angeles. A fiscal emergency, brought on by a $46 million budget shortfall, forced it to stop paying some creditors and seek court protection, the city said.

San Bernardino filed for bankruptcy under Chapter 9, which is reserved for governmental agencies. Companies use Chapter 11, which allows them to cancel pensions, often shifting the burden to the government’s Pension Benefit Guaranty Corp.

The case is In re San Bernardino, 12-28006, U.S. Bankruptcy Court, Central District of California (Riverside).

On its face, the brief filed late Tuesday night by the California Public Employees' Retirement System in the municipal bankruptcy of San Bernardino isn't especially provocative. 

As Reuters was the first to report, Calpers wants U.S. Bankruptcy Judge Meredith Jury of Riverside to lift the automatic stay on litigation against San Bernardino, which filed for Chapter 9 protection in August, facing a gaping $46 million deficit. San Bernardino stopped making monthly payments to Calpers after it entered Chapter 9, and its debt to the pension fund now tops $5 million. Calpers' lawyers at K&L Gates argued in Tuesday's brief that under California's pension and labor laws, as well as the federal bankruptcy code, San Bernardino must make good on its obligations and pay the money it owes the pension fund. 

Those pension contributions, Calpers argued, are part of employee compensation, which is entitled to priority in federal bankruptcy. If San Bernardino won't pay, the brief said, the pension fund must be permitted to bring an enforcement action.

You won't find any sweeping pronouncements of Calpers' priority over San Bernardino's other creditors in Tuesday's brief. There's not even any mention of the city's proposed plan to resolve its deficit, which was passed Tuesday by the city council and calls for the city to continue to defer payments to Calpers. It's certainly possible that when Jury hears Calpers' motion to lift the stay in December, she'll treat it as a routine matter of Chapter 9 housekeeping. 

But I don't think that's going to happen.

Calpers didn't file Tuesday's motion in a vacuum. The pension fund is the biggest creditor not just in San Bernardino's municipal bankruptcy but also in Stockton's; San Bernardino's unfunded pension obligation is about $143 million and Stockton's is about $245 million. 

In the Stockton case, which predates San Bernardino's Chapter 9, Calpers has aggressively asserted its rights as a creditor. In response to complaints from bond insurers about Stockton's failure to negotiate any reduction in payments to Calpers, the pension fund said that it has priority over all other creditors and that the pension rights of public employees are protected by California's constitution. 

The bond insurers Assured Guaranty and National Public Finance Guarantee (an arm of MBIA) filed formal objections to Stockton's eligibility for Chapter 9 protection, challenging Calpers' claim of priority and hinting at a collision between the Supremacy Clause of the U.S. Constitution, which holds that federal law trumps state statutes, and the California state constitution's pension protections. 

(I've previously written about the federalism issue in the Stockton Chapter 9, which hinges on the intersection between 10th Amendment limits on federal judges overseeing municipal bankruptcies and the simultaneous requirement that cities show they're entitled to federal bankruptcy protection.)

The federalism issue has been pushed aside for now in the Stockton Chapter 9, as Calpers, the bond insurers and the city engage in mediation over Stockton's deficit reduction plan. A hearing on the bond insurers' challenge to Stockton's eligibility for bankruptcy protection isn't scheduled until March.

Calpers' motion in the San Bernardino Chapter 9 is on a much faster track. So if bond insurers want to test the strength of Calpers' power under the California constitution, they may well raise their Supremacy Clause arguments in responses due on Dec. 7. 

I believe the bond insurers are eager for the federalism fight; in the Stockton case, U.S. Bankruptcy Judge Christopher Klein of Sacramento has already ruled once that the whole purpose of federal bankruptcy is to permit debtors to sidestep contractual obligations and that "the Supremacy Clause trumps the similar contracts clause in the California state constitution." Klein wasn't ruling on Stockton's obligations to Calpers, but his reasoning bodes well for creditors who believe the pension fund's reliance on the state constitution is misplaced.

Calpers also engaged in some muscle-flexing in the San Bernardino motion that must have irritated the bond insurers. The fund cited its "police powers" as an instrument of the state of California and asserted that it's not even obliged to ask the court to lift the stay on litigation. It said it was only filing the motion "out of an abundance of caution." 

Calpers held out the prospect of terminating its relationship with San Bernardino, which would leave the city $319.5 million in the hole. And the pension fund also included several references to its powers under the California constitution. Though the motion addresses only San Bernardino's missed payments and not the city's long-term plan to pay its debt to Calpers, the brief can be read as bait by someone who is looking for a fight.

Calpers counsel at K&L Gates declined to comment. A Calpers representative told Reuters, "This legal action would allow us to collect the employer contributions from San Bernardino which are required by state law, to maintain the integrity of the San Bernardino pension plan for its public employees and retirees and to avoid needless procedural disputes and additional legal costs." 

National Public Finance is represented in both the Stockton and San Bernardino Chapter 9 cases by Winston & Strawn, which declined to comment. The bond insurer Ambac is represented in the San Bernardino bankruptcy by Arent Fox, which didn't respond to a phone message.

The city of San Bernardino has missed making payments of more than a million dollars a month to its employee pension plan since July, when the city first declared its fiscal emergency.

That non-payment is part the city's plan to show a bankruptcy court judge how it will close a deficit of nearly $46 million and restore the city to solvency.

The San Bernardino City Council decided Monday to not direct nearly $13 million it would normally have paid this fiscal year into California's public employee retirement system, known as CalPERS.

The city is already $6.9 million in arrears, the most any California city has fallen behind in recent months, said CalPERS spokeswoman Amy Norris. She was not immediately able to say if other municipalities have gone deeper into debt to CalPERS in past years, so it's difficult to put San Bernardino's non-payment into historical context.

CalPERS responded to the plan Wednesday by asking the judge who's monitoring the city's bankruptcy case to let it sue the city for payment. Normally, a city that files for bankruptcy would be shielded from lawsuits while it restructures its finances.

Mayor Pat Morris said insolvent San Bernardino had no choice but to temporarily halt paying into the pension plan.

"We have to first of all keep our essential services alive to protect our community and deliver those baseline services and doing that is taking all of our resources, it's that simple," Morris said.

The city had negotiated with CalPERS to try and arrange a different payment schedule and to pay interest on the mounting debt, Morris said. The agency manages pension funds for about 3,000 current and future retirees.

Morris says the city plans to pay up eventually, and does not want CalPERS -- which he described as a good partner to the city -- to drop or terminate the city's pension business.

"We're a member of the family in acute distress, and we're hoping that here in the ER room they will be one of the doctors who will help us through this and not an assassin," the mayor said.

Rising public employee pension costs worry other California cities, and some might be tempted to copy San Bernardino's strategy, said Karol Denniston, a San Francisco attorney who helped write the state's process for cities to declare bankruptcy.

"It matters to every municipality in California that's looking at having cash flow challenges and not been able to make their CalPERS payments either now or in the future," Denniston said.

She said California cities and financial industry players are closely watching the San Bernardino case to see whether the federal bankruptcy court will permit the city to pay CalPERS less than its contract called for, something that California law appears to forbid.

A bankruptcy judge would also decide whether CalPERS gets top priority, or must stand in line for payment behind other creditors.

Municipal bankruptcies are so rare that those issues have never before been decided in court, Denniston said. If San Bernardino can alter the terms or timetable of its pension payments, other cities might follow.

"We have over 450 municipalities in California right now. A good number of them are looking at struggling to make their CalPERS payments," she said.

While only three other California cities -- Stockton, Mammoth Lakes and Vallejo -- have declared bankruptcy in recent years -- none had withheld payments to CalPERS, said agency spokeswoman Norris.

In September, Compton tried the tactic. It had fallen about $3 million behind in its pension payments, Norris said. But CalPERS sued, and Compton has since made up the shortfall.

If Greek banks marked to market their nGGB (new GGB) holdings then they would suffer no additional losses due to this. If on the other hand they have them booked at par then all the benefits would be negated by the increase in capital injection by the state. As for the Greek pension funds, their massive losses and funding gaps do not count in the Greek debt. So it is a free raid on the future pension.

Even before Steven A. Cohen’s very bad week, the media narrative surrounding the hedge fund billionaire was well known: an intimidating temper that has mellowed with age, a bad back enflamed by the same, a hedge fund with a track record better than the Yankees and partial ownership of a baseball team whose standing is decidedly less stellar. This week, we review the highlights.

Like many billionaires Mr. Cohen, who has not been accused of any wrongdoing, shuns the media spotlight, but that hasn’t stopped journalists and colleagues from painting colorful portraits that compare him to characters from Henry Melville and Miguel de Cervantes.

“It’s a Darwinian and pressure-packed culture with ridiculous amounts of money at stake,” a former employee of SAC Capital told DealBook last year.

The closest Mr. Cohen has gotten to a media grilling recently was a sit-down with Paul Tudor Jones, another hedge fund manager, at a Wall Street-sponsored conference. Mr. Cohen is “almost as secretive as Howard Hughes,” one source told Businessweek in 2003. The comparison has stuck with the money manager despite his prominent forays into worlds of art, sports and politics.

In 2006, his hedge fund was focus of a widely criticized“60 Minutes” report on short sellers. His ex-wife, Patricia Cohen, told New York magazine that the television report was the impetus for her lawsuit over money involved in their 1990 divorce. The suit was later dismissed.

As the charges against former traders at his $14 billion hedge fund mounted, Mr. Cohen gave a rare interview in 2010 to Vanity Fair, saying that “in some respects I feel like Don Quixote fighting windmills.”

Or perhaps Mr. Cohen is, as Reuters described last year, the Feds’ Moby Dick, an allegory that would make Robert S. Mueller, director of the Federal Bureau of Investigation, a modern-day empty-handed Captain Ahab.

In the end, the high-minded literary references may not capture Mr. Cohen’s story as well as a man who inspired Bruce Springsteen, New Jersey’s true poet laureate. It could be that Preet Bharara, the United States attorney in Manhattan, could write the hedge fund titan’s final chapter.

In the hedge fund world – a land of outsized profits and enormous egos – they don’t come any bigger than Steven Cohen.

There’s the gigantic estate in Greenwich, Conn., complete with its own ice-skating rink and Zamboni machine. There’s the glittering art collection, reported to include works by Vincent Van Gogh, Paul Gauguin, and Jackson Pollock.

And of course, there’s the track record: returns averaging roughly 30 per cent a year over the last two decades, a performance which turned Mr. Cohen’s firm into a colossus that manages $14-billion (U.S.), much of it his own money.

Now signs are growing that U.S. authorities intend to pursue him over allegations of illegal insider trading at SAC Capital Advisors LP, the firm he founded in 1992.

On a conference call with investors on Wednesday morning, SAC revealed that it had received a notice last week from the U.S. Securities and Exchange Commission indicating that it is planning to file civil charges against the firm.

The notice doesn’t name Mr. Cohen, but authorities are considering extending the charges to include him, Bloomberg News reported.

The development comes only days after U.S. authorities filed criminal and civil charges against a former SAC trader, Matthew Martoma. They accused him of turning confidential information about a pharmaceutical drug trial into trades worth $276-million.

Mr. Martoma made those trades, authorities alleged, in consultation with someone identified in court documents as “Portfolio Manager A” and the “hedge fund owner.” Though he is not mentioned by name, those descriptions refer to Mr. Cohen. Mr. Cohen, 56, has not been charged with any wrongdoing.

Early on Wednesday, Mr. Cohen spoke to investors for about a minute at the start of the conference call, according to reports. Regarding the recent allegations, he said, “We take these matters very seriously, and I am confident that I have acted appropriately,” The Wall Street Journal reported.

A spokesman for SAC said he had no further comment beyond a statement issued last week, where the firm also said its conduct was appropriate and that it would continue to co-operate with U.S. authorities.

“The government’s investigation is moving closer to the finish line,” said Jacob Frenkel, formerly a federal prosecutor and lawyer with the SEC. “Who’s going to cross it and in what position is yet to be determined.”

The key question is whether Mr. Cohen will face any charges. The government’s sprawling investigation into insider trading has already netted several big fish – hedge fund manager Raj Rajaratnam and former McKinsey & Co. chief Rajat Gupta – but Mr. Cohen would be by far the most prominent investor pursued by authorities, should they proceed.

His investing performance has long elicited both envy and suspicion. The murmurings have grown louder in recent years as the government probe turned up numerous connections to SAC. Mr. Martoma is the fifth former employee of Mr. Cohen to face insider-trading charges related to his time at the firm.

The Connecticut-based company is known for its sink-or-swim ethos, which is harsh even by hedge fund standards. Winning traders are rewarded handsomely while anything less means an unceremonious exit. In its complaint against Mr. Martoma, the government claims that he reaped a windfall for SAC through illegal trades and received a bonus of $9.3-million. But less than two years later, he was fired. One executive described him in an e-mail as a “one-trick pony.”

For now, it appears that Mr. Cohen’s investors are not stampeding to withdraw their funds, although that could change quickly. Three former employees of SAC declined to discuss its culture and investment approach.

As for Mr. Cohen, he has poured some of his estimated $8.8-billion fortune into his Connecticut home (after numerous additions, it now measures more than 35,000 square feet) and into expensive artwork. He reportedly paid $8-million for a work by Damien Hirst which consists of a shark in a tank of formaldehyde.

“Art is a great diversion from looking at numbers,” Mr. Cohen told The Wall Street Journal in a rare interview in 2006.

Author Bill Cohan was on target when he asked on Wednesday whether U.S. Attorney for the Southern District of New York Preet Bharara is making wise use of precious government resources in trying to ensnare SAC Capital hedge fund giant Steve Cohen, but he left out one interesting possibility: what if Bharara flips Cohen?

Nailing Cohen on insider trading charges--and as Cohan points out, it's far from a slam dunk--will be unsatisfying to many of us who are still angry about the fact that, as Cohan puts it, "the people responsible for the worst financial crisis since the Great Depression continue to get off scot-free." We want to see top brass at Lehman Brothers, Bear Stearns, Merrill Lynch, or maybe even Goldman Sachs or JPMorgan Chase take a fall.

The difficulty is it isn't clear what laws were broken. Wall Street rewrote the laws--allowing banks to merge with securities firms, keeping over the counter derivatives free from regulation, making it okay to hide debt off the balance sheet--or even to shift in on and off just before the end of every quarter, as in the case of Lehman Brothers' "repo 105" transactions.

Still, there may have been slip ups. It's supposed to be illegal to tie loans to other investment banking products, for example, but banks do it all the time Citigroup, AIG, Bank of America, and other firms told bald lies to shareholders and have paid record penalties. Still, proving the kind of intentional wrongdoing required for a criminal conviction has proved difficult for prosecutors--at least when it comes to top management.

But if there is information to be gotten, its likely Cohen has it. His giant hedge fund is all about finding information that can't be accessed anywhere else. The big securities dealers fall all over themselves trying to give SAC the best information they have so he will trade with them and allow them to ring up trading commissions. Cohen has had access to any head of any Wall Street bank he has wanted for years. If he is forced to cooperate with the government, we may finally see the kind of case we've been waiting for.

JAY: Now we are going to begin. And we are told that we’re about to go over the cliff, a fiscal cliff, and we need to have massive reform to entitlement programs, Social Security, and others. Now joining us to discuss the crisis (we are told) is Michael Hudson.

Michael was a Wall Street financial analyst and is now a distinguished research professor of economics at the University of Missouri–Kansas City. His new book is The Bubble and Beyond. Thanks for joining us, Michael.

MICHAEL HUDSON, RESEARCH PROF., UMKC: Thank you very much, Paul.

JAY: So are we going off the cliff?

HUDSON:Well, there isn’t any cliff to go off, but for people who believe that a crisis is an opportunity, in order to get the opportunity to shift the taxes more onto the middle class, they have to call it a crisis. Of course, there’s no crisis at all.

JAY: Okay. Well, they say there is, ’cause they say there’s going to be these automatic massive cuts to the military and there’s going to be these massive cuts to social programs and such. And so what is the reality of that?

HUDSON: Well, because of the way that Mr. Obama worked with the Republicans to negotiate a crisis preplanned in advance, yes, indeed, by the end of the year there would be a reversal of the Bush tax cuts for the richest Americans. There would be, ostensibly, a cutback. That would last, I think, about one day, from December 31 to the time the new Congress meets. So they’d hardly skip a beat before they then set to making whatever the new deal would be.

The whole idea is to make it appear as if there’s a crisis, to make it appear as if Obama has to give in to the Republicans to essentially become what Mitt Romney would have become if he would have been elected. So Obama’s playing the role of Romney lite in saying, we’ve got to cut taxes on the rich, and the only way we can balance the budget if we give it to my campaign contributors, Wall Street, is to shift the taxes much more onto the working class. We have to take more out of their paycheques on the FICA withholding, and we have to raise the retirement age and cut the benefits to Social Security.

So what he’s saying is we’ve given $13 trillion of new debt in giveaway to the banks since September 2008, but we can’t create a single penny to reimburse the Social Security contributors for the money that they have actually contributed. We can only create fictitious money for our campaign contributors, not the voters.

JAY: Okay. So explain that a little more, ’cause that’s such an important point, that if in fact Social Security is in some kind of mod which some are claiming is unsustainable, a lot of that has to do with the money that was taken out of it not to give people Social Security.

HUDSON: Well, here’s the question of what does it mean to be sustainable. How were we able to fight World War II or the $3 trillion Iraq War without taxing? The answer is the Federal Reserve simply creates the money.

Now, right now the Social Security Administration has saved an enormous amount and—of extra, withholding from paycheques over and above what was needed to pay out Social Security. And this money was used, essentially, as tax cuts for the rich. So by taxing the wage earners more, President George Bush was able to slash—and before him Clinton, and before him his father, were able to slash tax rates for the higher tax brackets.

And essentially what people call the Social Security fund is really a tax shift. You don’t want to call it a tax on the poor, but it’s not for Social Security. Not a penny of that has been spent on Social Security. Every single penny of the Social Security Trust Fund has been collected extra [incompr.] as a tax that falls on wage earners that are higher than the taxes that the wealthiest people paid, higher than the tax that George Romney pays [sic], higher than the tax that Warren Buffett pays. And all this—as George W. Bush said, you know, the Social Security Trust Fund really doesn’t exist at all. It’s just an IOU. And these funds are nonmarketable Treasury securities.

And as people begin to retire and run down the fund, what happens is the Treasury simply spends down its balance at the Federal Reserve, and the Federal Reserve does exactly what it did when it took on the $13 trillion bailout of Wall Street. It just prints the money. There’s no need to tax the money to pay Social Security. The government simply spends it into the economy. That’s what central banks do. That’s what the Bank of England does. It’s what the Federal Reserve does. So why is it that the Federal Reserve and the Treasury can create all this money to pay Wall Street, and they can’t create a penny for Social Security?

JAY: So what’s the real objective here?

HUDSON:It’s almost comical.

JAY: So what’s the real objective in Social Security reform? ‘Cause there’s obvious other ways to be cutting the debt if cutting the debt is such a big deal. But the targeting of Social Security—what’s the real objective here?

HUDSON:It’s to put the class war back in business. It’s to essentially say, well, we only want to spend money on the 1 percent; we don’t want to spend any money on the 99 percent. The 99 percent’s role is to pay taxes; the 1 percent’s role is to get these taxes in the form of bailouts, subsidies, special spending like rebuilding all of the beach homes and rebuilding all of the private beaches in New Jersey—not the public beaches, but the private beaches and the private homes and, essentially, the 1 percent. It’s a giveaway.

JAY: But part of the issue here seems to be, from the Republicans, the push to privatize. And there are now some Democrats that are apparently making similar murmurs about sort of privatizing light and that. What’s behind this move to privatize?

HUDSON: The idea is the same one that had pension capital—pension fund capitalism in the 1950s. From the time that General Motors started its pension funds, there’s been a tidal wave of pension fund contributions into the stock market. That created a stock market boom in the ’50s, in the ’60s, into the ’70s. And I discuss that in my book The Bubble and Beyond.

But now the pension funds are all being downsized. How are you going to create a pension fund, a stock market boom? The idea of privatizing Social Security is to give Wall Street the biggest clientele that it’s got in history. It will be the biggest giveaway in history to Wall Street.

And not only will they push this money into the stock market while more people are paying in, pushing into a stock market boom, but at the same time, the Wall Street banks like Citicorp and Bank of America can treat its customers like counterparties.

They can gouge them on fees.They can then stick them into stocks that they then all of a sudden—the day will come when more people begin to retire than pay into the plan, and at that point, the stock markets are going to begin to go down. Then all of a sudden the Wall Street speculators can dump the stocks, pull their money out, and leave the Social Security retirees holding an empty bag, and the government’ll say, well, that’s the madness of crowds.

And it’s not the madness of crowds. It’s a Wall Street scam. And that scam has been put in place by an enormously well subsidized propaganda campaign to convince people that it’s necessary for them to become suckers for the Wall Street money managers.

JAY: Now, is there any sense or evidence that Obama or Biden are going to compromise with this? In the election campaign, I thought they were both pretty clear they’re against the voucher system, which is sort of the form or model of privatization that the Republicans are advocating.

HUDSON: I think the voucher system you’re talking about is for Medicare and for Medicaid, not Social Security. So what are we talking about now? Social Security [crosstalk]

JAY: Yes, I’m sorry. Not voucher, but to create Social Security as a private fund that people can invest. And I thought Obama and Biden said they would not support that.

HUDSON: Yeah, I think that’s correct. This is a Republican plan. I don’t think it’s the Democratic plan to support privatization. When the Republicans say look at Chile, that’s a wonderful thing to do. Every single pension plan put in by Pinochet’s party at gunpoint in the 1970s, every one was looted by the employers and by the banks and went bankrupt by the end of the 1970s. That’s why the Chilean voters threw out the party and voted for the socialists, who were against doing this. So all you have to do is look at Chile.

But of course the Republicans are looking at Chile and say, my god, we can put all of the private money into the pension funds to be Social Security funds to be invested, and then we can steal it all, we can steal trillions of dollars, we can get richer than we’ve ever dreamed of if we can only have the right to steal. And that’s what this is. The—what the—talking about Social Security reform is theft, and that’s what it should be called, theft.

JAY: Alright. Thanks very much for joining us, Michael.

HUDSON: Thank you very much.

JAY: And thank you for joining us on The Real News Network.

Beware of wealthy CEOs who are lecturing the rest of us about tightening our belts.

While America's CEOs are fretting about the government's so-called "fiscal cliff," millions of American workers face a financial disaster that gets much less media attention. There's a half-trillion-dollar deficit in the nation's worker retirement benefits.

The Great Recession, which decimated retirement assets, played a big role in building this lesser-known cliff. But many corporations could have avoided the problem by shoring up these funds during the boom years. Instead, they siphoned pension assets for other profit-boosting purposes. When the pension deficits started to balloon, many corporations responded by slashing back their benefit programs.

As a result, Americans today are more reliant on government-funded Social Security and Medicare programs than at any other time in the last 60 years.

What's even more outrageous is that the very same CEOs who have contributed to rampant retirement insecurity are now calling for cuts to these earned-benefit programs for senior citizens.

Nearly 100 CEOs have banded together to convince the American public that Social Security and Medicare lie at the root of America's fiscal challenges. Their "Fix the Debt" campaign features plain-spoken Americans in their ads and sounds moderate because they call for both spending cuts and revenue increases.

But the real objectives of the campaign include massive new corporate tax cuts and reduced spending on Social Security and Medicare, which would likely involve raising the retirement age.

American workers, at present, cannot collect Social Security and Medicare until age 66, the highest retirement age among rich countries. In 2020, the Social Security retirement age will rise to 67, assuring that American workers will be toiling longer than any other industrialized country for years to come. In contrast, Japanese and Chinese workers can collect their equivalent of Social Security starting at age 60.

The Fix the Debt campaign's CEO supporters need not worry about Social Security because they're members of the "I've Got Mine Club." Fifty-four of the CEOs leading Fix the Debt directly benefit from lavish executive retirement programs. Their collective pension assets total $649 million, which comes to more than $12 million per CEO. That's enough to garner a $65,000 retirement check each month starting at age 65 that will continue for as long as they live, according to a new report by the Institute for Policy Studies, which I co-authored. In contrast, the average retiree receives just $1,237 from Social Security each month.

Yet, the firms headed by Fix the Debt CEOs owe their U.S. pension funds more than $100 billion, according to the IPS study. U.S. law requires corporations to keep their pension debts to manageable levels, but this pressure has often resulted in benefit cuts.

General Electric, which has a staggering $22 billion pension deficit, shut down its pension fund last year, saying it had become a "drag on earnings" (at a whopping cost of 13 cents per share, according to their estimates). Like many other firms, GE has shifted new employees to a less costly 401(k) plan, putting the risk for poor stock market performance onto employees.

Beware of wealthy CEOs who are lecturing the rest of us about tightening our belts. American workers would be far better off if CEOs worried more about fixing their own companies' pension debts.

If Republicans and Democrats ever get around to fixing the "fiscal cliff," President Obama won't be done dealing with potential budget calamities. There's a new bailout on the horizon: this time, for cash-strapped state pension systems.

A recent report by the U.S. Congress Joint Economic Committee pegged the debt of state-run retirement systems at nearly $3.5 trillion.

That amount, which is nearly one-quarter of the entire federal debt, is decimating state budgets and pushing some toward the brink. Despite this looming crisis, states continue to avoid necessary reforms. The usual culprits, California and Illinois, lead a long list of states that continue to accrue more and more debt.

States avoid reforms

California faces more than $370 billion in unfunded pension liabilities and continues to live under the perennial risk of bankruptcy. The Golden State first laid the groundwork for a bailout in 2009, during the peak of the financial crisis. 

At the time, a spokesman for California State Treasurer Bill Lockyer rationalized the call for federal relief as this: "We think California taxpayers stack up pretty well compared with Wall Street firms." Since this plea, California has enacted cosmetic reforms but failed to enact changes that would turn around its troubled finances — leaving the door wide open for federal relief.

Obama's home state of Illinois is in even worse shape. It has on hand less than 30% of the money needed to fund its pension obligations. Many experts say Illinois' funds already are insolvent.

Since 2009, Illinois Gov. Pat Quinn has floated the idea of federal pension relief both at the White House and in his 2012 budget proposal. Illinois has yet to enact or even consider any major reforms, and the governor has refused to rule out accepting a federal bailout for pensions.

Cities in trouble, too

At the municipal level, public pension shortfalls have forced cities into tough spots. Some are nearing crisis; others already are there.

Rep. Hansen Clarke, D-Mich., recently sought $1 billion in emergency federal aid for Detroit, stating he wanted "relief to be sizable enough" to save the city from its emergency status. The cry for help fell on deaf ears in Washington, but how long until more voices join and the cry gets loud enough that Washington has to pay attention? 

The truth is, state and local politicians would rather be rescued by Washington than take on the structural reforms while fighting the resistant special interests that stand in the way.

One bailout already

A precedent was set with the American Recovery and Reinvestment Act, which was a bailout in all but name. Nearly a quarter of the $787 billion stimulus went to states and local governments. Governors used this money not to enact long-lasting reforms but to continue their spendthrift ways.

Though he is a champion of government and government unions, Obama must understand that a bailout of states would destroy federalism. In order to force states to face their own problems and enact reform, both Obama and the new Congress have to make it clear that state bailouts — whether direct or disguised under another name — are off the table.

For some time during and after the financial crisis, it was fashionable to point to Canada as a paragon of fiscal and regulatory prudence. In the years leading up to the crisis, the Canadian government ran budget surpluses, which enabled it to stimulate the economy without creating huge debt loads we now see in Greece and Spain. In addition, the Canadian banking system faced stricter capital requirements and were more risk-averse than their American and European counterparts. Perhaps most important, Canada avoided the sort of real estate bubbles seen in the U.S. and Great Britain due to tighter lending standards and the absence of mortgage interest deductibility — at least until recently.

For the past year or more, Canadian officials have nervously watched as household debt levels has risen to worrying heights, fueled by increased mortgage borrowing. As The Wall Street Journal reported this week:

“Borrowing to buy property has helped make Canadians some of the most leveraged consumers in the world, at a time when their counterparts in other heavily indebted countries—such as the U.S.—are digging out. Household debt is now 163.4% of disposable income in Canada, close to the U.S. level at the height of the subprime crisis.”

Just like in the U.S., housing prices in Canada steadily rose in the decade immediately preceding the financial crisis, soaring 198% over ten years. They dipped slightly during the global recession, but bounced back quickly between 2009 and the beginning of this year, fueled in part by a low interest rate policy the Bank of Canada put in place to nurse the Canadian economy through the global economic slowdown. Real estate prices have risen so high, in fact, that many housing analysts believe the bubble is about to burst. Housing economist Robert Shiller told CBC news in September, “I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.”

Indeed there are signs that the party is already over. Due in part to efforts by the Canadian government to strengthen lending standards, home prices in Canada nationwide dipped year over year in October, and declined in many of the key local markets as well, according to a recent report in Reuters. ”With cooling evident in several major cities, speculation has turned to whether the slowdown will be a soft landing or a crash,” the report said.

What will determine the difference between a soft landing or a thudding crash like the one the U.S. experienced in 2007? Lending standards are a big part of the equation. In the run up to the bursting of the American real estate bubble, many homeowners bought homes with little money down and financed the purchases with loans that had low teaser rates that would jump higher a few years into the life of the mortgage. Those sorts of products swamped many homeowners in short order, and also meant that they had virtually no equity cushion when lenders came to foreclose. The lack of equity cushion meant that banks — who were over-indebted themselves due to poor regulatory oversight — had to resell the homes at steep losses, feeding the panic that soon turned into a full-blown housing crisis.


Canada, on the other hand, requires homeowners to put at least 20% down on a home, or to purchase mortgage insurance from the the Canadian Mortgage Housing Corporation (CMCH), a federal agency. Furthermore, Canadian lenders are in a much better position than U.S. banks were to absorb losses from any housing downturn. As CIBC economist Benjamin Tal told CBC news:

“The Canada of today is very different than a pre-recession U.S., namely as far as borrower profiles are concerned . . . Therefore, when it comes to jitters regarding a U.S.-type meltdown here at home, the only thing we have to fear is fear itself.”

Of course, few analysts in America predicted that the U.S. real estate market would blow up in the spectacular fashion it did in 2007, either. As financial blogger Pater Tenebrarum puts it:

“This kind of thinking has things exactly the wrong way around. It is precisely because such a state-owned guarantor of mortgages exists that the vaunted lending standards of Canada’s banks have increasingly gone out of the window as the bubble has grown. Today some $500 billion, or 50% of Canada’s outstanding mortgages are considered ‘high risk’ according to the Financial Post . . . Through CMHC and government guarantees for privately held mortgage insurers Genworth Capital and Canada Guarantee, Canadian tax payers are on the hook for more than C$1 trillion in mortgages. In other words, there is no practical difference to the role played by the once nominally private GSE’s and credit insurers in the US and the Canadian version of them: in both instances these institutions have enabled vast growth in ever more risky lending, while ultimately tax payers are picking up the tab when things go wrong – as they invariably must.”

That is to say, the difference between a soft landing and a meltdown could boil down to the financial integrity of the CMHC. A report from the agency released yesterday stresses its health and ability to stay solvent in the event of a downturn, and the conventional wisdom is that the Canadian real estate market will go through a rough patch and nothing more.  But anybody who was paying attention during the American housing crisis can remember similar assurances, which turned out to be just plain wrong.

At its annual investor meeting earlier this year, buyout firm Leonard Green & Partners LP played a video that parodied Réal Desrochers of Calpers as a spear-carrying sentry fending off a team of Leonard Green executives, portrayed as Knights of the Round Table, trying to raise money for a new buyout fund.

Mr. Desrochers's likeness hurled insults at Leonard Green executives and dumped garbage on them while defending a castle, people at the meeting said.

The Monty Python-like video was meant to be lighthearted, and parodied others, the people said. But it also is a sign of how Mr. Desrochers is picking fights with heavyweights of the private-equity business.

Mr. Desrochers, a 65-year-old native of Canada who last year became head of private-equity investing for the California Public Employees' Retirement System, has told buyout funds to reduce fees if they want cash from the $241 billion pension goliath, one of the nation's largest private-equity investors.

Much could be at stake for Calpers and its 1.6 million active and retired members. Lower fees could save the public pension money.

But Calpers could lose out if it snubs funds that deliver strong returns it needs to meet annual investment goals. Calpers saw returns of 1% for the fiscal year that ended June 30, below its 7.5% goal. Calpers's returns matter because they fund 65% of the pension fund's benefits; the rest comes from employers and members.

Private-equity investors are watching Mr. Desrochers's efforts. While few pension funds can command the bargaining power of Calpers, the largest public pension fund in the U.S., with $49 billion of private-equity investments, inroads by Calpers on fee cuts could create a precedent for others.

Some pension funds have received favorable fees from private-equity and other investment firms through special arrangements. The Teachers Retirement System of Texas this year received reduced fees to invest several billion dollars in special private accounts with KKR & Co. and Apollo Global Management LLC. In May, Calpers committed to invest $500 million in a managed account run by Blackstone Group LP  targeting investments that don't fit into its regular funds; Calpers receives lower fees in return.

But such deals usually aren't direct investments in traditional, buyout funds, something Mr. Desrochers has focused on. Two years ago, Apollo cut fees for Calpers, but only for accounts in which Calpers was the sole investor and not for Apollo's private-equity funds.

So far, Mr. Desrochers, who previously worked for the government-owned Saudi Arabian Investment Co. and the California State Teachers' Retirement System, has had mixed success. Calpers received lower fees from Cerberus Capital Management LP to invest $400 million in one of its latest funds, said people familiar with the investment.

"We are pleased that Calpers has selected the Cerberus platform for such a significant commitment and we look forward to continuing to build our long-term relationship with Calpers and all of our investors," said Mark Neporent, Cerberus's chief operating officer.

But Leonard Green and Ares Management LLC recently told Mr. Desrochers they wouldn't cut their fees, according to people familiar with the discussions. As a result, Calpers wasn't an investor in recent funds raised by both firms, both of which have had top-returning funds in recent years.

One Leonard Green fund that Calpers in the past invested in, the GCP CA Fund, scored an internal rate of return, a measure of annualized returns after fees, of over 90% between its launch in 2003 and close in 2010, a performance Calpers itself called "extraordinary" in an August report whose lead writer was Mr. Desrochers.

And Calpers has agreed to pay standard fees to invest in a new fund run by Advent International, according to people familiar with the investment, potentially signaling some flexibility by Mr. Desrochers.

Calpers's chief investment officer, Joseph Dear. said getting funds to change their fees can be a hard task, and deciding whether to take or leave a fund that won't budge on fees also isn't easy. "It's a tough slog," he acknowledges. "There are certain circumstances where we have to swallow hard" and invest without getting fees lowered.

Mr. Dear defends Mr. Desrochers's approach. "We're not doing our job if we're not doing our best to reduce what at times are exorbitant fees," he says. "We won't be successful in every instance, but if we don't try there never will be change."

One concern for buyout funds faced with Calpers's requests: Some have agreements with investors preventing the funds from reducing fees for one investor without doing so for others. That makes these funds reluctant to cut deals.

"Management and performance fees are pretty sacrosanct, you haven't really seen them breached," says Kevin Albert, head of business development at Pantheon, a New York firm that invests $25 billion in private-equity investments.

But some say it is an ideal time to levy pressure because many funds are struggling to raise money.

"The industry is in need of some fee rationalization, especially for large firms, as the fee structure has essentially been the same since the 1970s when funds were" below $30 million in size, says Maria Boyazny, who runs MB Global Partners, which invests in distressed-debt and other funds.

In a narrow 5-to-4 vote, the board of the Massachusetts state pension fund approved a compensation plan Tuesday that will increase bonuses for investment staff and introduce new hurdles for earning them, while rejecting others proposed by Treasurer Steve Grossman.

Michael Trotsky, the $50 billion fund’s executive director, said the new plan would give him the tools to compete for top hires — something the pension fund has long struggled with, and which contributed to a slew of vacancies this year. He also vowed to cut expenses elsewhere in his $300 million budget.

“I want to save $100 million,” Trotsky said, noting that the “real money” is in fees paid to consultants and Wall Street firms, including hedge funds. By contrast, only 1.5 percent of the budget, or about $4.5 million, is devoted to staff compensation.

“I need talented people to be able to replace Wall Street salaries,’’ Trotsky said.

But the vote, which followed more than a year of debate, was not without controversy.

Some meetings were heated, and politics were often at play. Grossman and Governor Deval Patrick’s board representatives worried about the public’s reaction to raises at the Pension Reserves Investment Trust at a time when the state could be facing budget cuts.

Theresa McGoldrick, a director who represents 3,500 unionized employees in the executive branch and the Trial Court, voted against the new pay plan, rejecting the idea of bonuses outright. “Performance-based incentive compensation does not have a place in state government,’’ she said at the meeting.

The new plan, slated to take effect Jan. 1, would expand the number of top investment jobs eligible for 40 percent bonuses, while cutting bonuses for 16 out of 24 staffers who aren’t involved in managing money. The latter would get raises to make up part of the difference.

In addition, the new plan introduced an individual performance component to bonuses and established a peer group against which to measure pay, based on other similarly sized funds.

Grossman, who is chairman of the pension board, voted against the plan because it lacked three provisions he supported.

He had pushed for bonuses to be linked to the fund’s long-term 8 percent annual return goal, because, over time, a failure to deliver that will mean taxpayers have to cover the shortfall.

Grossman also had wanted to defer bonuses in years when the fund loses money, even if the staff outperforms the market and their benchmarks.

“I’m not comfortable paying bonuses after a down year,” he said. The board instead reserved the right to hold the bonuses, but didn’t make the deferral mandatory.

Currently, the fund must beat its benchmark return by 0.75 percentage points for staff to earn bonuses. Grossman wanted to keep that level, but the committee recommended 0.60 points, closer to the industry average, and the board agreed.

The fund’s return was essentially flat last fiscal year, falling 0.1 percent. It’s up 10.5 percent so far in this calendar year, 0.5 points ahead of the benchmark.

One of the reasons infrastructure investment by British pension funds is relatively low, compared with (for example) infrastructure investment by Canadian pension funds, is that the UK's pension fund industry is fragmented: there aren't that many huge pension funds with the resources and appetite to make big long-term investments in new roads, or railways or airports.

And to tell you what you already know, the UK doesn't have a huge sovereign wealth fund, of the sort they have in Norway, much of the Middle East and Asia, keen and able to make massive long-term investments in the gubbins that underpin a nation's ability to grow and create wealth.

The Treasury tried to correct this flaw by encouraging the National Association of Pension Funds to create a so-called Pensions Infrastructure Platform (PIP), which brings together disparate pension funds with a collective interest in putting debt and equity into new British infrastructure.

According to those involved in the PIP, progress in herding the pension funds has been a bit better than might have been expected. It has eight founder members, which will collectively provide about £1bn, and a further £1bn will be raised from other funds next year - with the formal launch scheduled for the first half of 2013.

My understanding however is that Downing Street and the Treasury are engaged on a more ambitious project, to investigate whether it might be possible to create what might be seen as a British sovereign wealth fund.

I have learned that officials are looking at the assorted pension schemes for public sector employees that are funded (to use the jargon), and actually own shares, bonds and other investments, to see whether they could be merged in some way.

For example, in England and Wales, there are 89 local government pension schemes, which collectively owned £148bn of assets, as of April 2012 (according to data supplied by the pensions consultant John Ralfe).

If these funds acted collectively, they would have enormous investing power - and would be quite big enough to make significant investments in infrastructure.

So for ministers, trying to find a way of pooling this £148bn would seem eminently sensible.

And maybe other public sector pension assets could be put into the pot, such as MPs' £426m of pension assets, or the £18bn of miners' pension assets guaranteed by the government, or even the £28.5bn of Royal Mail pension assets that the Treasury acquired this year.

However, there is quite a big obstacle to creating a public sector superfund, which is that each of the separate schemes has its own trust deed and trustees - and getting them to agree to merge would not be easy.

So I don't know whether the chancellor has enough confidence that a big fund can be forged to mention it in today's Autumn Statement.

But the underlying theme of what George Osborne will say today is that it is becoming more and more urgent to unlock resources that could stimulate growth.

The government plans to raid the pension pots of the wealthy as part of efforts to cut the country's deficit will also affect middle-income earners and may discourage workers from taking part in pension schemes.

The amount workers can put in their pension pot before it gets taxed has been reduced to 40,000 pounds a year from 50,000, and the total a worker can accumulate tax-free throughout their lifetime now stands at 1.25 million pounds.

The move will raise 1 billion pounds towards cutting the country's deficit, finance minister George Osborne said on Wednesday.

"This will reduce the cost of tax relief to the public purse by an extra 1 billion pounds a year by 2016-17," Osborne said in his half-yearly budget statement to parliament.

Osborne said the move would only impact the very largest pension pots, but pension consultants disagreed, warning it could further erode confidence in pension schemes and undermine government efforts to get more people saving for their retirement.

"Osborne claims he is taking a carrot away from the rich, but he is also beating many middle class savers with a stick," Joanne Segars, chief executive of the National Association of Pension Funds, said in a statement.

Because of the way that pensions under "defined benefit" pension schemes - which promise staff a pension based on their final salaries - are valued, many middle-earning members could be penalised.

A modest promotion after years of built-up service and contributions to a pension scheme could result in one-off tax bill for moderate earners.

Public sector workers may decide to retire early to avoid their retirement funds being taxed, city law firm Berwin Leighton Paisner said in a statement.

"If there are doubts over the future tax treatment of pensions, people at all income levels might be less willing to save into pensions vehicles," Paul Sweeting, European head of strategy at J.P. Morgan Asset Management, said.

The move comes 18 months after the UK government cut the amount workers can pay tax-free into their pension from 255,000 pounds to 50,000 pounds in April 2011, making thousands of workers liable for a tax charge on their pensions.

On a positive note for workers, the government will allow retirees with so-called "drawdown plans" to take an extra 20 percent of income from their pensions pots.

A drawdown plan allows people to keep their pension invested while taking an income to support them in retirement.

Mark Dampier admits he's lucky to be able to afford to put £50,000 a year into his pension, but is furious at the £4,500 tax charge he faces paying when the £40,000 cap on contributions is introduced.

"Everybody thinks that it's rich bastards who should be taxed more. It's in tune with the times. But it's already the case that the top 10% of earners pay 55% of all income tax. In the past few years we have lost personal allowances and have been busy paying 50% and 45% income tax rates. My national insurance has also gone up like a rocket. Remember when Gordon Brown said the extra NI was there to pay for the NHS? I might have been happy with that, but the NHS is now bleeding dry."

The cut in pension relief won't just hit the rich, he says. "It won't just affect me, but people such as headteachers and GPs in final-salary schemes. It's not just the ultra-rich who will be hit. And what nobody ever says is that the pension system is tax neutral. Yes, I get 45% tax relief on the sums I put in, but when I take my pension I'll be taxed on the income at the other end."I'm lucky to be able to put in virtually the full [£50,000] amount, I agree. But do I think that's wrong? Not at all. I didn't put much into my pension when I was younger as I didn't have much money. And now that I'm doing so, it's supposed to be so terrible. I know no one is going to shed tears for the likes of me, but the constant tinkering with pensions is bad policy."

Dampier is probably one of Britain's best-known financial advisers, as head of investments for Hargreaves Lansdown, based in Bristol. He reckons the latest raid on pensions will drive even more people away from saving for their retirement. "Pensions have now got such an atrocious name. Whenever I look below the line at comments on pension stories they are incredibly negative. If someone asked me 30 years ago, I would probably have agreed with them that pensions were rubbish and full of high charges. But that's just not the case today."

He blames the Liberal Democrats for "political bargaining" that has resulted in the cap on pensions. "Why don't they reform the whole system rather than this piecemeal approach? They should put in place a once-and-for-all change rather than chancellors constantly meddling."

At least six hedge-fund firms announced plans to close in November and two more joined the list this week, underscoring the shakeout hitting the industry from uncertain markets, tighter regulation and what some fund managers say are investors with ever-shorter time horizons.

Some funds were hit by large requests from investors for cash, but others were just struggling to make money, fund managers and industry consultants say.

"If you look at the managers that have closed, there is not much commonality," said Michele Gesualdi, a fund manager at Kairos Partners, a fund of funds firm that invests in a range of hedge funds the same way that a mutual fund builds a portfolio out of many stocks. Recent shutdowns "demonstrate a tough time for the industry in general, regardless of strategy. Probably next year it will be even worse in terms of closures, but reduced competition should help performance improve."

Globally, 424 funds were liquidated in the first six months of 2012, 14% more than in the same period in 2011, according to data provider Hedge Fund Research. It hasn't yet published figures for the third quarter, but if the six-month pace holds, it would top the number of closures in both 2010 and 2011.

Many funds are struggling to do better than stocks and bonds. The average hedge fund was up 4.53% in the first 10 months of this year, on track to lag returns in major stock markets for the fourth year in a row, according to HFR. The Standard & Poor's 500-share index returned 14.28%, including dividends, in 10 months, while the Barclays Capital Government/Credit Bond Index rose 5.04%.

To be sure, investors—and almost all of them are big pensions and other institutional investors—don't appear to be giving up on the industry. Hedge funds manage a record $2.2 trillion at the end of the third quarter, up from $2 trillion at the end of 2011.

"Closures this year have been death by 1,000 cuts: a drip-drip of underperformance rather than a spectacular blowup," said Guy Wolf, a strategist at brokerage firm Marex Spectron. "The dominance of macroeconomic concerns and increased intervention from policy makers means that markets have become less fundamentally driven," with investors instead moving in and out of risky assets on the prevailing economic sentiment. "Many managers who have built their names, reputations and careers in a pre-2008 environment are struggling in this new paradigm, and the attrition rate will increase."

Among the fund managers that have said in recent weeks that they will shut down are Edoma Partners, Ridley Park Capital, OMG Capital, and, more recently Apson Capital, all in London. In the U.S., Grant Capital Partners, Weintraub Capital Management and Kleinheinz Capital Partners said last month that they would do the same.

On Thursday, U.S. hedge fund Diamondback Capital Management told investors that it would close and return money to investors. The company, which at its peak managed $6bn in assets, had been making money this year but faced redemption requests for Dec. 31 equal to 26% of its remaining assets and would shrink to $1.45bn. It also agreed in 2011 to pay the government more than $9m to resolve insider-trading allegations, while entering into a nonprosecution agreement with the Justice Department.

The decision to wind down the fund was based solely on the decline in assets under management and not related to any new regulatory situation, according to a person familiar with the situation.

Pierre-Henri Flamand, a former Goldman Sachs proprietary trader, set up Edoma two years ago to trade on mergers, takeovers, restructurings and initial public offerings, or what is know an event-driven strategy. But the dearth of deal activity hurt. He said he was shutting down Edoma's event-driven hedge fund "because I don't think I can make money in this environment."

Edoma's assets had fallen from more than $2bn at its peak to $855m, with further redemptions in the pipeline.

At Grant Capital, founder Geoff Grant decided that he didn't have an "edge" with his "global macro" strategy in today's markets. Such managers bet on big economic trends and policy decisions. But have found it difficult to time the frequent ups and downs of markets in which swings are often driven by announcements from politicians or central bankers.

A spokesman for OMG Capital, an equity trading boutique, said its "strategy doesn't work in the current environment," in which investors are swinging between liking and loathing riskier assets. OMG's strategy doesn't take a view on the direction of stock markets. An investor in Apson said the "lack of trends and low volatility across asset classes" had made it challenging for its equity strategy to make money.

More hedge fund closures are expected.

"In strategies where the average performance has been good, individual funds that have underperformed on a two-year basis and don't have critical mass will come under pressure," said Danny Caplan, Deutsche Bank's European head of global prime finance, which provides services to hedge-fund firms.

Recent closures have at least been orderly, a far cry from the spectacular blowups of hedge funds such as Long Term Capital Management in 1998, Amaranth Advisors in 2006 and Peloton Partners in 2008, all of which suffered huge losses and widespread investor redemptions before exiting the markets.

"Before it was death through blow-up or dramatic loss of assets. Now it's death through petering out," said Chris Jones, managing director and head of alternatives at consultant bfinance.

Adding to the trading challenges faced by hedge funds, many investors are demanding more frequent performance reporting, better liquidity and steadier returns, without adjusting their return expectations.

"Hedge-fund investing should be about finding a manager you believe in, understanding their investment philosophy and sticking with them over the long term, through periods of underperformance," said one hedge fund manager.

Investors are asking managers to think long term but then judging them over the short term, said Marex Spectron's Wolf. "It is not enough for managers to be confident that their long-term view is correct—they have to stay in business long enough to be able see their view play out. This is changing the way they invest".

Moreover, hedge funds, once essentially unregulated, are getting more attention, another factor dissuading their managers. In the U.S., regulations that took effect earlier this year require managers with more than $150m in assets must tell the Securities and Exchange Commission about their investors and employees, the assets they manage, potential conflicts of interest and their activities outside of fund advising.

Hedge fund Diamondback Capital Management, one of a handful of firms embroiled in a government insider trading investigation, told investors it would close down after nervous clients demanded the return of more than a quarter of its assets.

Richard Schimel and Larry Sapanski, the firm's co-heads, broke the news to clients in a letter Thursday just three weeks after investors asked Diamondback to return $520 million, five times the amount top executives had expected.

As assets dwindled to $1.45 billion from about $5 billion two years ago, the firm's business model was in jeopardy and executives had to decide between closing the firm down or trying to engineer a second big restructuring within 18 months.

"Rather than continue to manage investor capital while undertaking to restructure the firm to manage this reduced level of assets, we have decided that the most prudent course is to wind down and terminate the funds and return investor capital," the two men wrote in the letter, a copy of which was obtained by Reuters.

Diamondback expects to lay off nearly all 133 employees. A small number will stay to manage the final liquidation, the people familiar with the matter said.

Founded by Schimel, Sapanski and a third partner, Chad Loweth, in 2005, Diamondback had been an industry darling.

Its three founders had all worked at Steven A. Cohen's successful SAC Capital Advisors, giving them the kind of pedigree that attracted some $6 billion of assets from marquee clients like the New Mexico's pension fund and Blackstone Group's powerful fund-of-funds unit.

BUCKING THE TREND

The fund's returns were strong with an average annual return of 9 percent since 2005, boasting gains even during the financial crisis when many hedge funds were in the red. There was only one down year - 2011.

But two years ago, the firm's fortunes plunged when federal agents raided its Stamford, Connecticut-based headquarters, shepherding employees into a conference room, taking their cell phones, and spending hours boxing up documents.

With Diamondback swept up in the government's fast-moving insider trading probe into how managers might be using illegally obtained tips to make million-dollar trades, many investors got cold feet and ran for the exits.

The probe had already led to the arrest of Galleon Group founder, Raj Rajaratnam, in 2009 and would later lead agents to Cohen's SAC, where seven former SAC Capital employees have now been implicated or charged. Last week, SAC told its clients it would likely face civil securities fraud charges.

Diamondback's founders and the firm were never accused of any wrongdoing, but many clients left, and the company gradually shrank.

In January, when Todd Newman, a former Diamondback portfolio manager, was arrested in Boston, the news turned worse for the firm. Although executives promptly fired him after he came under a cloud and cooperated with the government investigation, the fact that Newman's trial coincided with investor redemption notices that were due hurt the firm, a person familiar with the matter said.

So managers began selling assets and moving into cash in order to return the bulk of client money by mid-January.

Yahoo! Inc, Capital One Financial Corp and American International Group Inc were among the firm's biggest holdings at the end of the third quarter, according to securities filings.

CLOSING THE LOOP

Diamondback's liquidation now closes the last chapter of four firms that were surprised by FBI raids in November 2010, when the government's probe picked up speed.

The other firms - Level Global Investors, Loch Capital Management and Barai Capital - unraveled quickly. Diamondback, however, vowed to stay in business, helped by powerful investors like Blackstone Group's ongoing support.

But by November 15, the date for investors to decide whether they would stay or go, there was a tough decision to be made.

While Diamondback was delivering respectable returns of 7 percent after having returned an average of 9 percent a year since its founding in 2005, Newman's trial was playing out in a Manhattan court room.

Even though Diamondback's founders would not be prosecuted in the matter, there was a lot of headline risk. The firm had agreed to pay $9 million to settle civil charges that Newman, who made technology investments from Boston, and Jesse Tortora, a former Diamondback analyst, were making illegal trades.

Diamondback joins a large number of funds that have recently decided to get out of the business for a variety of reasons. John Kleinheinz is shutting Kleinheinz Capital because, he said, he wasn't having fun running the fund anymore, and Pierre-Henri Flamand, who set up Edoma Partners after leaving Goldman Sachs, said he could not make money in the current tough market environment.

At the same time, tougher regulations have also put a crimp in some traders' operations, industry experts said. And the government's insider trading case is expected to continue for some time at least.

Eager to improve returns and keep details of their “black box” trading strategies as secret as possible, so-called CTA (commodity trading advisor) funds are buying exchange membership seats for hundreds of thousands of dollars.

These include Winton Capital, one of the world’s largest with $29-billion of assets, and Cantab Capital with $4.5-billion.

Direct membership allows these funds, which can make hundreds of trades a day, to dodge broker commissions which often run into tens of thousands of dollars a week for the most active funds, one futures broker said.

Cambridge-based quantitative fund Cantab Capital said it spent in September more than $1-million on three seats at the Chicago Mercantile Exchange (CME), the world’s largest futures market, where it puts through at least half of its trades.

“We estimated what we have executed over the past year and worked out that we would make back the cost of the three seats in less than six months,” said founding partner Ewan Kirk.

“There is a lot of talk about trading costs at the moment and everybody should be focused on getting the lowest cost possible.”

Winton became a member of the CME last July, according to a notice on the CME Group’s website. Winton declined to comment.

Broker revenues have been boosted in recent years by the rapid growth of the CTA industry, which more than doubled in size between 2009 and 2011 to $188-billion, according to Hedge Fund Research.

But if more hedge funds were to take up exchange membership the largest futures brokers could lose tens of millions of dollars in commissions.

The world’s top futures brokers include Goldman Sachs , JP Morgan, Morgan Stanley, UBS and Newedge – owned by Societe Generale and Credit Agricole.

These firms declined to comment on the trend. A spokeswoman for the CME Group also declined to comment.

Canada’s public servants may have reached the “tipping point” where they are forced to save so much of their salaries for pension benefits that they are scrimping while working to pay for a better standard of living when they retire, says a leading pension expert.

A study by the Institute for Research on Public Policy on federal pensions being released Friday calls for a major overhaul of the public service pension plan to resolve a growing list of long-term financial, demographic and human resource challenges facing the government.

And chief among those concerns is a pension plan whose costs have created an “irrational” imbalance between the pre-retirement and post-retirement lives of public servants, says the study’s author Bob Baldwin, who worked in pensions for the Canadian Labour Congress.

“We are at a tipping point because the increase in contributions to cover the cost of new benefits … becomes irrational for plan members,” he said. “They are giving up too much in the way of consumption opportunities before retirement in relation to their value after retirement. There are a chunk of members put in a situation where the plan is depressing their pre-retirement living below what they expect in retirement and we should avoid that.”

Baldwin said people should save or “give up enough consumption” while working to ensure they have a secure retirement income that maintains their lifestyle. The public service plan is getting out of whack when contribution rates are so high that public servants’ standard of living is lower than the lifestyle they can enjoy when retired.

Public servants can earn pensions worth up to 70 per cent of their salaries.

Baldwin said the public service plan is approaching this tipping point because benefits are so generous that the costs of providing them have skyrocketed. The contribution rates needed to pay for existing liabilities have increased 50 per cent since the 1990s and they are expected to continue to climb.

The cost of pension benefits now account for 20 per cent of the government’s wage bill.

But Baldwin argues this “imbalance” is one of three major problems facing the plan that the government will have to wrestle with, especially in the face of a looming labour shortage.

Under existing financial rules, the contribution rates will become volatile and unpredictable. The existing plan also encourages public servants to retire too young. They can leave as early as age 55 if they have 30 years of service without facing penalties.

This poses a problem for the government, which will want to retain workers as long as it can as the labour market tightens. Federal employees are typically university-educated and older when they join the public service today, which means fewer will qualify for early retirement at age 55.

Baldwin said the government took a critical first step with the pension reforms it introduced in the March 2012 budget, but more must be done. He is recommending a top-to-bottom rethink about pension financing, benefits, the plan’s structure and even how it is governed.

A wobbly economy, labour shortages and an aging population have put the cost of public sector pensions on the political agenda at all levels of government.

The government faces intense pressure from groups like Fair Pensions for All, Canadian Federation of Independent Business and the C.D. Howe Institute to revamp public servants’ pensions, which they call gold-plated and unaffordable.

In the budget, the government increased the age of retirement from 60 to 65 for all new hires. The move will not only force future public servants to work longer for the same pension as current workers, it also effectively killed for future employees the early retirement provisions that allow public servants to retire at age 55.

Under the changes, public servants will have to foot the bill for half of the contributions to their pension plans by 2017. Public servants slowly increased their share and now pay about 37 per cent of contributions, with the government paying the remaining 63 per cent.

Baldwin argues the plan should be redesigned to limit the financial risk of future plan members and the government, address the “consumption imbalance” public servants face and better align it with the government’s long-term human resource planning and recruitment.

This will mean shifting some of the financial risk from contribution rates to benefits. Among the factors increasing contribution rates are public service retirees living longer, employees joining the public service later in their careers, and changes in the assessment of future returns on investment.

He acknowledged such a major rethink will meet fierce resistance from the 18 federal unions that have fought hard to keep public service pensions as they are.

“Where the unions will come down in this depends on what the real alternatives are and I imagine their opening view will be the status quo,” he said. “But in my personal view, the status quo can’t be sustained forever and they shouldn’t be because of the growing irrationality of the plan for lifetime consumption.”

He said reforms should be part of an overall or ‘total compensation’ strategy to pay “neither more nor less” to fill the public service with the talent and skills it needs. Compensation includes salaries, overtime, pensions, health and dental plans, performance pay, classification and reclassification, vacation, leave, cash-outs and contributions to CPP and EI.

For years, critics have argued the problem is Treasury Board ministers typically don’t get a “big picture view” of how the wage bill is spent. They approve salaries and benefits as they are ratified but don’t see them as an overall compensation package.

Baldwin argues the system would work better if all the pieces of compensation were managed together. This would mean expanding collective bargaining beyond negotiating wages. With everything on the table, unions are more likely to make trade-offs.

Baldwin said the government should also consider offering employees joint management of the plan now that they will equally share contribution costs. He argues it would be “untenable” for the government to call all the shots when public servants are paying half the costs and could be asked to change benefits.

He said the government would also have to do a better job of tracking compensation and comparing it to other sectors where it competes for talent. The government should also do regular reports on the total compensation packages of all employees compared to the private sector.

“The total compensation of government employees is a matter of legitimate public interest and silence on the government’s part feeds cynicism on the subject,” he wrote.

In the current economic and fiscal environment, Canada’s public sector pension plans have come under significant scrutiny. Critics have argued that these generous defined-benefit pension plans are inequitable, because the benefits they offer are vastly superior to those in the private sector at a public cost that is understated and unsustainable. This has led some to suggest that plans for public servants be brought more in line with private sector defined-contribution plans, where workers bear the risks of underfunding. Proposals to increase the retirement age and the share of costs borne by employees have also gained traction.

As governments across the country move toward public sector pension reform (Canada, Ontario and New Brunswick announced important changes in 2012; Quebec is still examining the options), it is important to put these issues in perspective. In this study, pension expert Bob Baldwin analyzes the federal Public Service Superannuation Plan (PSSP) as a case study of the broader policy issues in the context of these reforms.

Moving beyond the simplistic comparison of the public and private sector pension landscapes, Baldwin critically assesses the long-term fiscal, demographic and human resource management context facing the PSSP and the public service more generally. He finds that the PSSP is  indeed more generous than other plans, and he suggests that reforms should focus on making the plan more consistent with other public sector plans in Canada and with  workforce renewal objectives. This means that more significant reform is required than was  announced in the 2012 federal budget.

An important aspect of Baldwin’s analysis relates to the plan’s affordability and cost-effectiveness relative to the basic objective of retirement saving, which is to balance pre- and post retirement living standards. He argues that the cost of consumption forgone today to pay for PSSP benefits upon retirement is approaching a tipping point. The cost of benefits may be too high relative to their future value in retirement. Given this imbalance, he argues, reform should be of interest to both the employer and the employees. This suggests that policy-makers need to target the overall cost of the plan — forecast to be 20 percent of pensionable payroll in 2013 and rising — not just how costs are shared between employers and employees.

As for establishing what the value of retirement benefits should be in the future, Baldwin recommends that this calculation be part of a more systematic approach to total compensation (wages plus all benefits). In the context of an aging workforce, where attracting and retaining workers is likely to become a more significant concern, the federal government should resist completely moving away from the PSSP’s defined-benefit structure. Instead, Baldwin recommends it adopt a framework similar to the jointly sponsored/jointly governed model (with joint cost- sharing) that is prominent in Ontario’s broader public sector, as in the Ontario Teachers’ Pension Plan. This approach would enable the government to share the risk of future shortfalls equally with employees while maintaining leverage over the retirement age of its workforce.

It is when you have a young family and costs across the board are skyrocketing... I need to pay the bills now, save for university educations, then think about retirement. I'd gladly trade for a plan that afforded more flexibility when employees need the money most.

In sum, virtually every safeguard that was supposed to protect the public purse and the public interest was subverted, evaded, or rolled over. Ministers failed to exercise oversight over their departments; Parliament was prevented from exercising oversight over ministers; the public was kept in the dark throughout. You could have backed a truck up to the Defence Department and loaded it up with $40-billion, for all our traditional checks and balances were concerned.