Bob Klausner with New York Mayor Michael Bloomberg and Congressman Gary Ackerman, sponsor of H. R. 710.

View H.R. 710

HR 710 introduced to provide guaranteed funding opportunity
for state and local pensions
By
Robert D. Klausner
Klausner & Kaufman, P.A.

On January 27, 2009, Representative Gary Ackerman (D.NY) introduced HR 710.  The purpose of the bill is to encourage state and local retirement plan investment in TARP approved financial institutions.  In return for investment in a class of preferred stock, the retirement plans will receive an 8.5% guaranteed rate of return as well as a guarantee of principal.  The idea is to provide an infusion of non U.S. government capital into the banking system, which can be leveraged by a multiple to create capital for consumer loans.  The investments will be a direct guarantee of the Treasury, rather than a deposit guarantee through FDIC.

The other goal is to provide a guaranteed investment opportunity for state and local plans which have been hard hit by the capital markets.  This will in turn serve to relieve funding pressures on state and local plan sponsors.  Plans are encouraged to contact Congressman Ackerman’s office for more information and to encourage their own members of Congress to support the concept.

Congressman Ackerman has been assisted in this endeavor by this office as well as two highly regarded financial experts on restructuring, Julia Whitehead and Sean Mathis. This team has been working on the concept and its application for several months preceding the filing of the bill.  The following summary of the key points of the bill was provided at the recent Legislative Workshop sponsored by The National Conference on Public Employee Retirement Systems (NCPERS):

To secure additional Tier I capital for the United States banking system from parties other than the Federal Government by providing authority to the Secretary of the Treasury to guaranty certain new preferred stock investments made by public pensions acting in a collective fashion, and for other purposes.

• The “Ackerman Bill” calls for using government support to channel funds from a deep, readily accessible source of private capital — the public pension funds — to banks which can leverage that capital in ways which support governmental measures to right the economy. The target rate for  this investment is currently 8.5 %.
  • The Bill intends to support from $50B - $250B of pension plan monies which will be injected into banks through preferred shares eligible for inclusion in the Tier I capital of participating banks — subject to a guarantee by the Federal Government of the dividends and principal of the preferred.
  • While the banks which receive funds under this bill will be mutually agreed to by Treasury and the pension fund investment fund boards, it is anticipated that preference will be given to stable, regionally and locally based institutions which intend to use the funds to support credit extension through:  expansion of their own loan book;  the purchase of asset backed securities, including those secured by home mortgages, consumer credit card receivables, or student loans, which will facilitate additional lending in those areas; and even acquisition, at the request of the Federal Government, of failing financial institutions which can be stabilized and then grown, supported by the capital provided in this Bill.
• The Bill provides clear benefits to the economy:
  • For the first time in this crisis, substantial private funds will be brought to bear on our problems; the use of a guarantee to attract those funds leverages government resources.
    
    Its targeted provision of capital to banks recognizes that the restoration of a functioning banking system is a necessary pre-condition to any recovery.
  • The cost to the government and taxpayers will be mitigated because the government’s involvement is through a guarantee rather than an outright use of funds and given the level at which the capital is injected, and the ability to use it to benefit healthier institutions, there is every possibility much or all of the guarantee will be unused.
  • The returns on the preferred issued subject to this bill will help to offset the losses suffered by public pension funds whose portfolios have been decimated by plunging equity prices and which otherwise must look to local governments and taxpayers, already severely strained by the current economic crisis, to cover their obligations to millions of public employees.             

For additional information, please contact:
Robert D. Klausner, Esquire
Klausner & Kaufman, P.A.
10059 NW 1st Court Plantation, Florida 33324
(954) 916-1202
bob@robertdklausner.com
www.robertdklausner.com