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The Way of the Chili

Leadership Tips from a Chili Queen

PHOTO/JD's Chili Parlor

Diana Anderson, the co-owner of JD's Chili Parlor in San Antonio, says pension fund officials can learn a lot about leadership by cooking chili.

By Allen Jones, TEXPERS Communications Manager

Chili is a dish frequently used in cook-offs, and although many people debate over the best version of it, cooking the dish is a lot like leading a pension system, says Diana Anderson, a modern-day chili queen who co-owns JD’s Chili Parlor with her husband John in San Antonio. 

Anderson hosted a cooking demo Aug. 13 during TEXPERS' 2018 Summer Educational Forum in San Antonio - the city many chili aficionados believe chili first took root in the U.S. The theme of this year's Summer Educational Forum was Texas Pension Chili: a Recipe for Returns and was held Aug. 12-14. Anderson provided a unique perspective linking chili cooking to leadership.

Anderson's popular catering company often sets up tents to cook and serve a variety of chili dishes at various farmers markets and other venues. She also conducts chili cooking demonstrations and has come to know a lot about the spicy dish's history.

"Much like running a pension, cooking chili takes commitment, inspiration and the ability to adapt to produce successful results," Anderson says. 

Chili con carne, or what most Americans shorten to chili, is named for its base ingredients of chili peppers and meat – usually beef. The dish originated in northern Mexico and Texas. 

Many chili aficionados trace the dish's roots to San Antonio. Some 200 years ago, women known as “chili queens” would take their cooking pots to the plazas of San Antonio where they would cook their spicy stews over open fires. Their dishes often included tomatoes and beans, but not always. Seasonings may have included garlic, onions, and cumin, Anderson says. 

Setting up crude tables and stools, women would turn the plaza into makeshift restaurants, or chili parlors. Soldiers, tourists, cattlemen, and musicians often were patrons of the parlors, paying 10 cents for a bowl of chili. In the 1920s, chili parlors would spread across the U.S. making the dish and its various incarnations a favorite staple of American comfort food. 
Today, there are a variety of chili dishes. There is vegetarian chili; chili made with green chili peppers, called Chili Verde; pork-based chili, white chicken chili, and black bean chili, to name a few. Tastes even differ geographically over the types of meat and ingredients, such as Rocky Mountain Chili that often includes ground elk or other local game as its main meat stewed with chipotles, chocolate, and coffee. TEXPERS' firefighter friends may enjoy Five Alarm Chili, which uses five different types of peppers in the recipe to pile on the heat. 

It seems everyone has their favorite chili dish. Cooking it can be a very personal thing, Anderson says. She considers herself a student of chili’s past and is currently helping research chili’s roots in the U.S. for a documentary film. 

She traces the dish to a stew-like fare once cooked outdoors on Canary Island. The recipe included garlic, chili peppers, wild onions and cumin spice blend resembling the Berber seasoning style of Morocco, she says. 
Anderson says there are several ways cooking chili relates to leadership. A good chili takes time to create, often simmering all day, so it is just right to ladle into bowls. Cooks must have a passion for what they are creating. And, they must be willing to experiment with flavors and spices.

COMMITMENT

Like a chili chef, pension trustees and administrators need fortitude, Anderson says. Failing to cook chili for the appropriate amount of time will have lackluster results that disappoint taste buds. Likewise, a pension fund’s trustees and administrators must understand that today’s fiduciary decisions will have profound, long-term impacts on members, retirees, beneficiaries, plan sponsors, taxpayers and the general public. 

Pension system leaders, Anderson says, that are distracted from their primary purpose of meeting retirement benefit obligations could gain unwanted public criticism. Fund officials must hold ethics to high standards.

DESIRE

Cooking chili also takes passion. A good chili cook wants to learn all they can about prepping food, selecting fresh ingredients, and combining flavors that please family, friends, or customers. Anderson says leaders of public employee pension systems must have the hunger to ensure their active members receive a secure income when they retire. 
A leader with true passion will want to understand rules and regulations to which pension systems must adhere. A passionate leader will want to learn about the challenges of a rapidly changing and complex policy and investment environment. 

Passionate leaders get excited about sifting through large volumes of data to glean insights to become better fiduciaries. They also enjoy advocating on behalf of their members when challenged by public officials and others looking to dismantle defined-benefit plans. And, importantly, they want to take part in continuing education to be the best leaders they can become.

ADAPTABILITY

No chili dish is alike, and neither are pension systems. Chili recipes may have some common ingredients but there may be different people making the dish with individual ideas of what flavors work together best, Anderson says. Chili cooks have different skill levels. A chef may have to tweak a recipe to account for dietary restrictions. A region may have preferred meat such as venison or chicken instead of traditional beef. Some chili eaters may not want a meat of any kind in their chili. 

Likewise, each pension system is one of a kind. Officials face common challenges, but one fund’s best practices may not be the most effective for another. Every system is at a different stage of development and operates in a separate legislative, socio-political and economic environment. Each fund has different board members with varying levels of expertise and degrees of confidence in their staff and consultants. Fund leaders have different decision-making styles, access to various resources, and may deal with different authorities. Pension funds have different types of investments and may have a large membership or very few.
Not everyone is called to be an expert in chili making or in running a public pension plan. Everyone, however, should be willing to develop their skill sets to do the best job they possibly can. Take a cue from chili queens of past and present: be passionate about the work you have committed to do and be willing to find the right ingredients uniquely suited to your fund.

Photos from the Summer Educational Forum's chili cooking demonstration

Photo/Allen Jones, TEXPERS

Summer Educational Forum attendees enjoy samples of chili during a cooking demonstration.

Photo/Allen Jones, TEXPERS

Graystone Consulting sponsored the cooking demonstration conducted by JD's Chili Parlor.

Photo/Allen Jones, TEXPERS

JD's Chili Parlor co-owner, Diana Anderson, greets a TEXPERS Summer Educational Forum attendee during a cooking demonstration held Aug. 13.

Feds arrest man for allegedly laundering stolen money belonging to Texas pensioners

Photo: pexels.com

Experts suggest pension funds implement security protocols, educate members

By Allen Jones, TEXPERS Communications Manager

Federal and state authorities recently arrested a man they claim laundered thousands of dollars stolen from pensions belonging to former state employees.

The case is a warning to Texas public pension system administrators and trustees that the personal identification of active and retired plan participants are prime targets for criminals.

Federal law enforcement arrested Lukman Shina Aminu, 34, in Manchester, New Hampshire, July 12 for allegedly laundering thousands of dollars from multiple fraudulent schemes, including money stolen from accounts belonging to retirees of the Employees Retirement System of Texas. Aminu is charged with one count of conspiracy to commit money laundering and was to be transferred from New Hampshire to the Austin Division of the Western District of Texas for trial. If convicted, he could receive up to 20 years in federal prison. 

“Personal information is being compromised at a record-breaking rate,” says Eva Velasquez, CEO and president of the Identity Resource Center in an email to TEXPERS. 

Click image to enlarge.

The nonprofit center assists victims of identity crimes in remediating their cases; broadening public education and awareness of identity crimes including data breaches, cybersecurity, scams/fraud and privacy issues. The center helps approximately 10,000 victims of identity theft every year through its call center and more than 800,000 individuals via its free information on its website. 

Although the center isn’t involved in the case involving the Employees Retirement System of Texas, Velasquez says institutions and organizations including public pension plans that house personal information could have their systems compromised through a variety of methods (hacking, phishing, employee negligence and theft, for example). But cybercriminals aren't just targeting institutions. Individuals are also self-compromising their information, Velasquez says. 

“This can occur through a scam telephone call, phishing, smishing, and even oversharing on social media,” she says.

The federal complaint doesn’t indicate how the private information of the pensioners was stolen and only charges the suspect with money laundering. TEXPERS attempted to contact ERS, however, officials were unable to respond to questions about the incident due to an ongoing investigation. Aminu's arrest is part of a continuing investigation by the FBI and the Texas Department of Public Safety’s Public Integrity Unit.

Here is what is known. Beginning in June 2017, personally identifiable information of former state employees was used to make changes to their accounts in the retirement system’s internet portal, according to a federal complaint filed in Austin. Bank deposit information of the retirees on file in the system was changed to re-route pension payments to a debit card controlled by the suspected money launderer. 

Money laundering is a process by which criminals disguise the original ownership and control of funds by making stolen funds appear to have come from legitimate sources. In this instance, Aminu allegedly laundered the retirement payments of the pensioners by using the debit card for cash withdrawals and to purchase money orders used for personal expenses. Federal officials also allege that Aminu used the stolen money to buy used vehicles to be shipped overseas to Nigeria and Benin for resale. 

The retirees from the Texas public pension system aren’t the only ones that had their funds stolen, either. The suspect allegedly received multiple transfers from victims of other schemes on other debit cards that had been opened using their personally identifiable information, according to the US. Department of Justice criminal complaint against Aminu.

The takeaway for those managing public employee pension plans and those who service investment funds: cybercriminals want the information and money the organizations have. Velasquez says pension plans should be diligent in securing sensitive member information and help pensioners understand how they can help secure their private data.

Financial services organizations such as public pension systems and investment firms have a wealth of information that they keep on hand about their members that thieves would find attractive, Velasquez says. She is right about the sensitive data public pension systems maintain. Public pension plans provide former state and local employees with stable incomes, and that requires lots of personal data to manage investments and issue payments. Systems maintain pensioners’ Social Security numbers, birth dates, home addresses, bank account numbers, and government identification. And they might not be the only entities with the sensitive information. Third-party vendors such as investment brokers and actuaries also might be in possession of personal identification belonging to pensioners. 

Click image to enlarge.

More than 2.6 billion data records were compromised worldwide in 2017, according to digital security company Gemalto. The company tracks data breaches and maintains its Breach Level Index online. Every day, 4.7 million records are lost or stolen, or roughly 198,207 records every hour, according to the security firm.

Although the company reports tracking an 11 percent drop in the number of data breaches from 1,981 in 2016 to 1,765 in 2017, security incidents are getting faster and broader in scope. The number of records breached every day nearly doubled between 2016 and 2017. 

A significant factor in the loss of digital records is the abundance of poor security practices, according to the firm’s report. When tracked by industry, 12 percent of breach incidents in 2017 were among financial institutions, 11 percent were among government agencies, and 1 percent were among nonprofits – all areas public pensions systems could be classified under.

Organizations should take steps to ensure their digital data are secure, says Velasquez, the Identity Theft Resource Center’s CEO. She stresses that public pensions follow any government regulations for data security as well as develop procedures to secure data networks to help limit breaches.

“Financial institutions are governed by myriad federal regulations so of course, they should be following those,” Velasquez says. “[National Institute of Standards and Technology, a non-regulatory of the U.S. Department of Commerce,] also lists best practices for collecting, housing, storing and disposing of sensitive data.”

NIST provides a Cybersecurity Framework, which consists of industry standards to manage cybersecurity-related risk. The framework’s common practices offer organizations “prioritized, flexible and cost-effective approaches to help promote the protection and resilience of critical infrastructure and other sectors relevant to the economy and national security,” according to NIST’s website. Following the NIST cybersecurity guidelines is not required by law, and the guidelines are customizable to individual organizational needs. 

Guidelines suggest creating electronic data security plans; training users, administrators, and management in security practices; instituting an effective password management program; keeping virus protection software up to date; and minimizing access points. Pension systems might offer two-factor authentication on internet portal logins that confirms users’ claimed identities by using a combination of two different verification methods such as a password and an answer to a question they know. Another example is to include the user repeating back something that a login portal sent to them through email or text to their smartphone. 

Pension systems also might consider hiring an information technology expert to work with on a full- or part-time basis. IT professionals maintain computer systems for companies and other organizations. It is a growing job field, according to Dennis Bonilla, executive dean of the College of Information Systems and Technology School of Business and College of Criminal Justice at the University of Phoenix. 

“People are often unfamiliar with cybersecurity job titles related to cybersecurity in the IT field,” he says. “They include penetration tester, ethical hackers, computer security incident responders, security architects, security consultants, among other terms. Many people haven’t even considered a career in cybersecurity. There are plenty of jobs out there.” 

In a University of Phoenix cybersecurity survey, only a third of U.S. adults are confident that their companies are prepared to combat hackers. Many indicated it was because their organizations didn’t have an expert on staff. Bonilla said that doesn’t mean public pension systems need to run out and hire a new staff member. It could mean they consider contracting with a cybersecurity security firm, seek out a consultant and ensure their third-party service providers have cybersecurity experts securing sensitive data. 

Although cybercriminals are often targeting financial institutions, there is another group of people who are usually in the crosshairs of criminals seeking data they can use to steal money: older adults in retirement.

“The elderly are a high-risk population when it comes to falling victim to scams, fraudsters and identity thieves,” says Velasquez, the Identity Theft Resource Center CEO.

Click image to enlarge.

She says the Federal Trade Commission and research firm Javelin Strategy and Research offer some insight into how many people are victims of ID theft. Last year, there were 16.7 million victims of identity fraud in the U.S., according to 2018 Identity Fraud: Fraud Enters a New Era of Complexity, a report issued by Javelin Strategy and Research. Last year, a record number of identity thefts occurred following a previous record set in 2016.

In the U.S., criminals stole $16.8 billion last year. Companies notified 30 percent of U.S. consumers of a data breach during 2017, which is an increase of 12 percent from the year prior. And nationwide, for the first time, more Social Security numbers were exposed than credit card numbers, according to Javelin’s report.

In Texas, there were 33,454 complaints of identity theft reported to the Federal Trade Commission’s Consumer Sentinel Network. The commission ranks Texas 12th in the U.S. in the number of ID theft complaints.

Although the data doesn’t indicate the targeted age groups, experience tells Velasquez that older Americans are frequently subject to being tricked into sharing sensitive information or are just not securing their digital identifications.

There are two distinct vulnerabilities within the retiree population, Velasquez says.

“Some older citizens have more savings at their disposal and higher credit ratings compared to other demographics,” she says. “It has been our experience that they are also less savvy with digital platforms and often more trusting when engaging in online transactions.”

Click image to enlarge.

The other segment of the community may be relying on others for their care, she adds. They may not have the means to make critical financial decisions and stay on top of things like good identity hygiene.

Helping pensioners understand how to protect the data they maintain on their personal computers and electronic storage devices might be a service retirement systems provide to potentially reduce private information from falling into the hands of criminals looking to hack into a fund’s data network. Pension systems might consider publishing personal data security tips on their websites, email how-to articles on personal cybersecurity to their pensioners, or hosting internet security talks for their local pension members to attend.

Unfortunately, incidents such as what happened to the state plan and its retired members are becoming common in the realm of cybersecurity. However, with attentiveness on behalf of a pension fund’s administrators, the frequency and scope of incidents can be minimized.

Additional Resources

NIST website provides a list of resources that describe sector best practices. Here are a few resources public pension plan trustees and administrators might want to check out:

Communications

• Federal Communications Commission (FCC) Communications, Security, Reliability and Interoperability Council's (CSRIC) Cybersecurity Risk Management and Best Practices Working Group 4: Final Report

Financial Services

• Securities Industry and Financial Markets Association's Small Firms Cybersecurity Guidance: How Small Firms Can Better Protect Their Business
• The Financial Industry Regulatory Authority Report on Cybersecurity Practices
• Federal Financial Institutions Examination Council's Mapping Cybersecurity Assessment Tool to NIST Cybersecurity Framework
• Financial Services Sector Coordinating Council’s Customization and Profile

Proposed change to actuarial standard would impact Texas public pensions

Graphic: iStock/relif

By Elizabeth  Wiley, Consulting Actuary

The Actuarial Standards Board has proposed changes to Actuarial Standard of Practice No. 4, or ASOP 4, entitled “Measuring Pension Obligations and Determining Pension Plan Costs or Contributions.” 

ASOP 4 is an existing standard of practice that guides actuaries in performing work for pension plans. There is a significant proposed change to the standard, which applies to all defined benefit plans, including Texas public pension funds.

Key Change

While the proposed ASOP revision includes changes to a number of technical items relating to funding calculations, the most significant proposed change is the addition of a requirement to calculate and disclose an “Investment Risk Defeasement Measure,” which is the value of liabilities using a risk-free interest rate. Let's refer to this measure as the IRDM. The IRDM is to be calculated as part of the actuarial valuation of a pension plan for funding purposes using:

1.    Benefits accrued as of the valuation date;

2.    The unit credit cost method;

3.    Discount rates that are either

a.    U.S. Treasury yields; or

b.  rates at which pension obligations can be effectively settled. (This can be yields on fixed-income debt securities that receive one of the two highest ratings given by a recognized ratings agency); and

4.    Assumptions, other than discount rates, used in the valuation or other reasonable assumptions based on estimates in market data.

The IRDM is described in the proposal as a measure “to reflect the cost of effectively defeasing the investment risk of the plan.” However, the prescribed method for calculating the measure means that it is essentially a settlement cost for benefits earned to date. Under the prescribed unit credit method, the benefits accrued to date would not include expected salary increases. The actuary is required to use current market interest rates to calculate the value of benefits earned to date. Therefore, we regard this measure as a market-value of liabilities disclosure.

Because it is based on current interest rates for bonds, the IRDM will be a volatile measure that will fluctuate from year to year as market interest rates change. In addition, the actuary will need to ascertain the accrued benefit (benefit earned to date) for each participant even where the plan does not contain such a definition, as is common for public plans.

The purpose of the IRDM is not stated in the proposed ASOP. We do not feel that its disclosure will facilitate assessment and disclosure of risks associated with defined benefit pension plans and may actually be confusing information that me be used, either intentionally or unintentionally, to mislead people about the condition of pension plans.

Public Sector Plans

For public plans, the IRDM will require additional work and is not used for either funding or accounting purposes. It does not measure the level of investment risk to which a plan is exposed, and the cost of settling current benefits is rarely relevant to a public plan. Actuarial valuations for public plans use discount rates consistent with the expected return on plan investments over future years. The goal is orderly funding of the plans over time. Thus, funding calculations are based upon projected benefits. The current value of benefits accrued to date does not play a role in the funding of a plan over time. And, as previously stated, accrued benefits are often not defined for public pension plans.

The long-term aspect of public plan funding has been recognized by the Government Accounting Standards Board in statements 67 and 68. These statements require that the expected rate of return on plan assets be used to the extent the plan assets, including future contributions intended to pay for benefits already earned, are projected to be sufficient to pay benefits. A current market interest rate is only used to the extent plan assets are not projected to be sufficient. In contrast, under the IRDM measure, market interest rates will be used for all periods.

The idea of using a measure such as the IRDM for public plan accounting purposes was thoroughly discussed and rejected by GASB. The Actuarial Standards Board, however, is proposing to require that actuaries calculate and disclose such a measure whenever a funding valuation is performed. We see little value in such a disclosure for a public plan.

We expect that critics of public plans will likely seize on any IRDM as evidence that public plans are underfunded. The critics will point to the IRDM as the “true” measure of plan underfunding and claim the plans are not affordable. They will (as now) overlook the fact that the immediate payment of any underfunding is not required. We fear that even with efforts to communicate the basis and meaning of this liability, it will be presented as that “true” measure and used as a basis for attacks against these plans.

ASOP 51 Requires Risk Disclosure

New ASOP 51 will soon be effective for most plans. I believe that the framework ASOP 51 establishes is the appropriate structure in which to assess and disclose risks. Under ASOP 51, a minimal-risk present value that corresponds to the present value used for funding purposes is one permissible method to disclosing risks, but there are other methods, such as stress testing, that may better disclose risks. I feel it would be appropriate to allow this new standard to come into effect before making further changes to the environment in which actuarial pension valuations are completed.

Comments on this proposed revision were due July 31 and the ASB received a large number of comments. They will review them and likely either issue a revised exposure draft for further comments or make changes to the current exposure draft based on the comments and issue this as the revised version of this standard to be in effect.

If this standard does come into effect including IRDM, it is crucial that the TEXPERS plans understand what this number represents as well as what it does not represent, and begin a proactive campaign of education and communication to limit the potential misuse of this value.

About the Author:

Elizabeth Wiley is an actuary with Cheiron, a full-service actuarial and financial consultancy, advising a national client base of public employers.

TEXPERS members tout fund's financial health 

to Rep. Roland Gutierrez

TEXPERS encourages its members to update elected officials on pension fund performance. Recently, San Antonio Fire and Police Pension Fund Executive Director Warren Schott, left, and SAFPPF trustee James Smith, right, updated Texas State Rep. Roland Gutierrez, center, on their pension fund's financial health after a glowing report from Segal Consulting last month. Smith also serves as TEXPERS' first vice president.

Proposed amendment is harmful to public pensions

Staff Report

TEXPERS and many other retirement systems have written U.S. congressmen opposing a proposed bill that would establish a dangerous precedent concerning unfunded federal mandates, taxation of municipal bonds, and intrusion into the operations of state and local governments.

Rep. Devin Nunes, R-California, recently introduced the Public Employee Pension Transparency Act (House Bill 6290), which calls for an amendment to the Internal Revenue Code of 1986 for reporting and disclosure by state and local public employee retirement pension plans. Nunes introduced the bill, known as PEPTA, June 28. It is to be considered by the Committee on Ways and Means, the chief tax-writing committee of the U.S. House of Representatives, before it is possibly sent on to the House for voting.

TEXPERS' executive director, Max Patterson, and the association's president, Paul Brown, expressed their opposition to the proposed act in joint letters sent to House Speaker Paul Ryan (R-Wisconsin) as well as to Ways and Means Committee Chairman Kevin Brady (R-Texas) and the committee's ranking member, Rep. Richard Neal (D-Massachusetts). 

Rep. Kevin Brady, R-Texas.

"If passed, [PEPTA] would impose unnecessary, unwanted and unfunded federal mandates in areas that are the fiscal responsibility of states and localities,” according to the joint letter written by Patterson and Brown.

The proposed act conflicts with existing governmental accounting standards, write Patterson and Brown. PEPTA also threatens to eliminate the tax-exempt bonding authority of state and local governments.

"Consider the fact that every state and many localities have recently made modifications to pension financing, benefits structures, or both and none required federal intervention," write Patterson and Brown.

Click here for the full copy of the letter TEXPERS submitted to Texas representative Brady.

This isn't the first time Nunes has introduced PEPTA. The representative first introduced the legislation in 2010. This time around, though, the act has three co-sponsors, which is the lowest number since it was first introduced, according to the National Association of State Retirement Administrators. 

In a newsletter, NASRA indicates that 20 national organizations sent letters of opposition to all members of the U.S. House of Representatives. "As there are a number of federal legislative vehicles under development that could include retirement provisions, including multiemployer plan solvency legislation and a Tax Reform 2.0 bill, systems are encouraged to continue congressional outreach and weigh in if they have not already done so," according to a statement issued by NASRA in the newsletter.

The National Conference on Public Employee Retirement Systems is among the 20 organizations opposing the proposed act. TEXPERS also encourages its membership systems to write to delegates in the U.S. House of Representatives opposing PEPTA.

Send letters to Rep. Kevin Brady staffers Aharon Friedman, Aharon.Friedman@mail.house.gov, David Davis, David.Davis@mail.house.gov, and Barbara Angus, Barbara.Angus@mail.house.gov.

For Rep. Richard Neal, email your letter to Kara Getz at Kara.Getz@mail.house.gov. For House Speaker Paul Ryan, email your letter to George Callas at George.Callas@mail.house.gov.

Also, a listing of staffers for all other Texas U.S. House members is located here on TEXPERS’ website. In addition, consider contacting your local House representative. You can look up your representative here.

2017 Census data indicates decline in 

active retirement system members

Staff Report

The U.S. Census Bureau last week reported combined state and local pension data for 2017, finding that the number of active members in Texas declined from 2016 by 1.2 percent, from 1.35 million to 1.33 million.

The drop in active pension system members is in step with the bureau's data indicating a national decline in active members from 2016 by 1 percent, from 14.6 million to 14.5 million.

The National Association of State Retirement Administrators also crunched the bureau’s data and reported that nationally, the number of annuitants grew by 3.9 percent, to 10.7 million, from 10.3 million the prior year, marking the highest level of annual growth since 2012. Benefits paid by pension plans sponsored by states and local governments in 2017 grew to $295 billion, compared to $200 billion in contributions received.

Click here to access the 2017 Census public pension data report for the U.S.