As state officials close in on a public contractor allegedly the perpetrator of several illegal acts regarding retirement funds for state and local employees, the spotlight should shift to the fragmented structure of the retirement system in Louisiana that creates the potential for this kind of abuse and needlessly reduces investment returns.
Randy Zinna has served in an executive director capacity, by contract, for three of Louisiana’s 33 retirement systems for state and local government employees. The state’s inspector general has forwarded a report indicating that legal action should be undertaken against him for some of his dealings with the systems’ funds. He first came under suspicion when the Municipal Police Employees Retirement System, sensitized by a number of bad investments its board authorized (documented here), began scrutinizing his cash flow activities over many years.
But the ability for this presumed abuse of public trust and funds was multiplied because of the large number of retirement funds, each with their own governing board, in the state. There are 16 for state and, collectively, parish employees while another 17 are run by individual municipalities or parishes. Together, they make Louisiana ranked 15th of all the states plus the District of Columbia in number of systems, but most states ranked higher have higher populations. Only Arkansas, Colorado, and West Virginia have smaller populations with more systems, and several states around Louisiana’s population have many fewer, such as Alabama (11), Arizona (7), Iowa (9), Mississippi (4), Nebraska (13), Oklahoma (12), and Oregon (4). Some very highly populated states such as New York and Ohio have few, while Maine and Hawai’i have just a single system covering everybody.
By having so many systems, each with their own separate board of appointees by state or local elected officials (and typically a representative of the retirees and of current employees covered elected by the members), that creates a lot of inexpert individuals entrusted with governing who thereby lean heavily on those that in most instances serve as executive directors on a contractual, part-time basis. Consolidation of these into a few or even only one system would increase the breadth of experience of board members that should improve their governance decisions, and necessitate the hiring of full-time, professional directors (such as Louisiana’s largest systems have now) who would not have private sector conflicts with their duties.
Besides strengthening the integrity of the systems, combination of systems also would reduce the investment risk each of the smaller system now face. With smaller amounts of money invested through each, the impact of a single bad investment magnifies. Pooling funds would increase diversification which over time would reduce poor performances, an especially trenchant consideration given their tremendous collective unfunded accrued liability in the $14 billion range that must be completely eliminated within the next two decades. Also, duplicative expenses could be eliminated, bringing scales of efficiency to the systems’ management and saving retiree and/or taxpayer dollars.
Posted by Jeff Sadow at 08:25