Bloomberg news
written by Elliot Blair Smith
Friday April 15, 2011
The deal came together behind the doors of a Louisiana psychiatric ward. John Skannal, 74, signed a document in October 2003 authorizing the sale of land handed down through eight generations of his family.
The buyer was a statewide pension plan for municipal law officers. The fund assembled golf and real estate holdings that lost 84 cents on each dollar the police spent on them over 10 years. The losses are emblematic of a decade in which the $1.2 billion program went from fully funded to $836.3 million short of meeting future retirement obligations.
The nine trustees of the Municipal Police Employees’ Retirement System made a series of decisions that taxpayers and 10,748 active and retired cops are now paying for. The board embraced bad investments, ignored warnings of weak financial controls that enabled its attorney to steal $1.2 million and set up conflicts of interest among its advisers, according to a review of thousands of pages of documents obtained under the state public records act and more than 50 interviews.
“It was like a gigantic playhouse,” says Nick Congemi, 68, chief of the Greater New Orleans Expressway Police in Metairie, who for years criticized the system’s leadership and investments. “These people have taken the futures away of good, decent law-enforcement officers who thought they could depend on this for the rest of their lives.”
$479.6 Billion Deficit
The irregularities in the Louisiana police plan show how trustees and employees of U.S. public pensions, operating with little or no oversight or transparency, can cost taxpayers and threaten the retirement income of government workers. Assets held by state systems are $479.6 billion less than what is needed to fund estimated obligations, according to official financial reports compiled by Bloomberg.
“The failure to govern public pensions appropriately inevitably hurts those who can least afford it: retirees, workers and taxpayers,” says Eleanor Bloxham, chief executive officer of Value Alliance, a Westerville, Ohio, governance consulting firm. “Such lapses can produce even greater harm than traditional financial crimes prosecuted by law enforcement.”
In California, Democratic Governor Jerry Brown brought civil charges last year when he was attorney general against a former CEO and a former board member of the $233.5 billion California Public Employees Retirement System, the largest in the U.S. State and federal proceedings are continuing. In March, Calpers documented six years of unreported gifts by members of the board and employees, and improper awarding of investment contracts that paid excessive fees.
Cuomo Probe
Before becoming New York’s Democratic governor, Andrew Cuomo probed corruption at the state’s $140.6 billion pension fund when he was attorney general, leading to eight guilty pleas and the payment to the state of more than $170 million.
Alan G. Hevesi, the former Democratic state comptroller who was the program’s sole trustee, was sentenced today to a minimum of one year in state prison after admitting he approved pension- fund investments in exchange for almost $1 million in gifts.
“I publicly disgraced myself,” Hevesi told a Manhattan judge at his sentencing hearing. “I have only myself to blame.”
Randy P. Zinna, 53, the former attorney for the Louisiana police fund, pleaded guilty last year to mail fraud after state and federal investigators accused him of embezzling to pay sports-gambling debts.
Louisiana’s 13 statewide plans had unfunded liabilities for fiscal 2010 of $20 billion, with enough assets to cover 65 percent of estimated obligations, according to their latest financial statements.
Funding-Review Panel
Among 45 U.S. states reporting data for fiscal 2009, Louisiana ranked 41st based on proportion of future pensions covered by assets, according to data compiled by Bloomberg. The Legislature next month will consider recommendations by a funding-review panel to increase mandatory contributions and require governance changes.
The law-enforcement fund, known as MPERS, was the fourth- worst funded among statewide plans. The program’s assets were 2 percent lower last June 30 than a decade earlier. Kelly Gibson, a Lafayette police lieutenant who is the board chairman, declined to discuss previous decisions.
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