Impromptu Speech Topics: Money Making Schemes

This year, more than 600 taxi drivers were implicated in a giant taxi scam in which drivers overcharged passengers more than $1.1 million by flipping switches on their meters that kicked in higher rates. In the wake of the scandal, the Taxi and Limousine Company scrambled to portray the incident as a series of isolated incidents and mistakes by a select number of drivers. But according to one of those taxi scammers, these were no Lee Harvey Oswalds: it really was all a giant evil conspiracy!

According to driver Joseph Kastner, a group of drivers would meet together at cabby conferences in garages around the city and plot their nefarious schemes. "I met a series of drivers who decided to rob the public. They were actually having meetings at my old garage," Kastner, 49, told the TLC during a Sept. 30 administrative court hearing. Kastner is one of those accused drivers; he is charged with allegedly cheated 3,925 passengers out of $7,756, the sixth highest amount for an individual driver. Kastner claims that he wanted to become a whistleblower, alleging that the scams were much bigger than let on previously, and that he had stuff on the TLC as well, but no one took his offer: "I tried to tell them over and over again at the hearing. They didn't listen to a word I said. They just don't want to hear it," he told the Post.

So is Kastner trying to escape his fate by alleging a citywide conspiracy, making up stories to look better, or is there really an underground network of thieving taxi drivers plotting to steal unwitting customer's money? TLC obviously didn't take his claims seriously, but the Post sides with Kastner, saying that other cabbies and industry insiders confirm his story, and bad hacks pull other stunts such as charging drivers to put on the heat, pressing the "extra" button on tolls and bridges, and posing as livery drivers at airports and charging more than double the flat fee of $45 to Manhattan. Whether or not the conspiracy is as widespread as Kastner would have you believe, the best thing you can do is consult the Passenger Bill of Rights, and always be vigilant of extra charges of any kind.

Pension funds will be prevented from investing in risky assets, including stocks, by the Pensions Regulator under plans to stop weaker companies with large pension shortfalls from making huge bets.

David Norgrove, chairman of the regulator, will outline his concerns that some schemes are taking risks that could leave a bigger hole in the industry funded Pension Protection Fund in a speech to funds on Tuesday.

“We have to ensure that they are not putting all their money on the 2:30 at Newmarket and if it doesn’t work out, they will fall back on the PPF,” he said. “To some extent, we have seen some behaviour like that.”

Some schemes were so underfunded their only hope of recovery lay in big bets. The regulator was also concerned about standards of governance, particularly for smaller schemes.

“We come across a fair degree of criminality at the smaller end of schemes,” said Mr Norgrove, whose six-year tenure at the regulator, created in 2004, is drawing to an end.

Investment curbs would affect a few weak companies initially but as schemes close to new members and to future accruals trustees will need to insure that the investment strategy takes as few risks as possible. “Eventually it will move up the scale,” he said. Companies will need to be well funded and have few, or no, investment risks.

Under those circumstances, defined benefit schemes might cease to be significant investors in equities and property.

Mr Norgrove said that despite cash injections from employers, defined benefit schemes today are not much better funded. “Contributions have had to run to keep up with rising longevity, falling discount rates and shortfalls in investment returns,” he said. “We clearly can’t have a situation where we move from recovery plan to recovery plan.”

Pensions agency head weighs risk and reward

As David Norgrove, the first chairman of the UK Pension Regulator comes to the end of his term, Britain’s retirement landscape is radically altered from its condition when he first arrived in 2005.

Nearly 60 per cent of defined benefit schemes are closed to new members – up from 44 per cent when he first began counting them in 2006 – and 21 per cent are closed to future benefit accrual, up from 12 per cent at that time. And Britain is about to embark on a universal system of near-compulsory pension provision where every employer will need to offer workers a chance to contribute to a savings pot for retirement where none existed just a few years ago.

Moreover, about 150,000 people had lost all or part of their pension when the legislation that set up the regulator was passed in 2004. Almost none have lost their benefits since.

But some things have not changed, Mr Norgrove notes in remarks prepared for an address to the National Association of Pension Funds on Tuesday.

“Schemes are only marginally better funded then when the scheme specific funding regime was introduced five years ago. Despite everyone’s best efforts, the economic conditions have largely counteracted the gains that schemes had started to make before the downturn,” said Mr Norgrove, who steps down at the end of this month.

Thus, in his parting shot, Mr Norgrove is hinting at the imminent death of one of the sacred cows of defined benefit pensions; that investment in risk assets – equities, property, commodities or hedge funds – can reduce overall risk and make defined benefit retirement promises affordable.

Indeed, he goes so far ... as to say that woefully underfunded schemes of companies with weak balance sheets should have their investments in risky assets limited. Schemes such as these “can only hope to meet their promises by taking very high levels of investment risk with significant potential to go wrong”.

The regulator, he said, must make sure that those deficits get no bigger than they already are. And that means cutting investment risk. But as schemes close to new members, and increasingly, to future accrual by existing members, employers have little vested interest in the welfare of the scheme. Increasingly, he said, these will be run by elderly member-nominated trustees and these, too, will have to curtail investment risk. And trustees will need to be aggressive in pursuing contributions.

Although Mr Norgrove did not say so specifically, the landscape he describes is one where pension fund investment no longer props up stock markets.

In his parting remarks, Mr Norgrove also took aim at two of the most sensitive issues for industry. First, he reiterated the regulator’s view that trustees must carefully monitor offers from employers to scheme members for “enhanced transfer values”, which are very often a bad deal for members. Pensions advisers have been fighting back hard to make it easier for employers to reduce retirement obligations by offering ETVs.

The regulator, he said, believes there are a handful of instances where accepting one might be beneficial – where the member cannot expect to live too long or has no dependents who will benefit from defined benefit pensions, for example. Also, if the offer is significantly superior to insurance cover provided by the PPF, a transfer might make sense.

Second, Mr Norgrove made it clear that defined contribution benefits, which are emerging as the dominant retirement savings scheme, need work. A new consultation on structure will be aired next year, he said.

But for now, he said, the myriad small schemes which dominate DC pension provision are not likely to serve the interests of savers well.

“What we don’t want is another 50,000 DC schemes,” he said. “They don’t have the scale for the governance and they don’t have the scale to keep the charges down.”

Is Mr. Norgrove right to limit risky bets by small underfunded pension
plans? I think so. Taking risky bets to make up for losses might sound
perfectly fine, but it could easily backfire, especially if we head into
a protracted period of debt deflation.

A colleague of mine
remarked that in the last ten years, JGBs outperformed the S&P 500.
And yet 10-years ago everyone was screaming about how low Japanese bond
yields were and many hedge funds were actively shorting JGBs. They all
got slaughtered, and more will get slaughtered shorting Japanese bonds,
even now.

But isn't the Fed giving money away to banks so they
can trade risk assets all around the world? Shouldn't pension funds also
be allowed to take huge bets? That all depends on the internal
expertise of the pension fund managers, on their risk management
process, and most importantly, on their governance.

I'm not
saying to go all in government bonds just in case debt deflation hits,
but it's simply foolhardy to think that investing more in alternatives
will help shore up these pension funds. All this to say that sometimes
it's worth bucking the trend and playing it safe. I know hedge funds,
commodities, real estate and private equity sound sexy, but the truth
is it's a lot sexier to limit your downside risk, especially if you're a
small underfunded pension plan paying out benefits.

bench craft company scam

Tuesday, December 28, 2010

Money Making Schemes

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