As if $18.2 billion in unfunded accrued liabilities isn’t bad enough, with a history of bad investment decisions, yet another problem may loom for Louisiana’s retirement funds. If so, at least the silver lining to it may be, finally, recognition that fundamental change must come to how state and local governments handle their investments for retirees.
It appears that $100 million of investment by three of Louisiana’s retirement systems designed for local government employees may be at risk by what is being called as “unorthodox” investing practices. These funds’ boards now fear they cannot get their money out at its actual value as a result, which has apparently become part of a larger investigation into the firm in question.
Unfortunately, if it comes to light that board members were insufficiently critical of promises of a minimum 12 percent return, it would not be the first time board members of a Louisiana retirement fund, most of whom have little if any background in financial matters much less any expertise in the modern financial services sector, chased impressive returns through dubious means that involved criminal activity.
One only has to observe the stupidity exemplified by the Municipal Police Employees Retirement System such as its investing in golf courses to see first-hand the wreckage bad decisions can do to a fund.
Of course, if Louisiana got out of the defined benefit pension business entirely, as governments across the country increasingly are doing in moves to defined contribution plans, there wouldn’t the problem of how to wisely invest taxpayer dollars to pay for retirement promises, much less dealing with the UAL, which in a few years will cost $1 billion annually for taxpayers to bring to zero by 2029 as constitutionally required. It should join these others, but that would work only going forward and does not address the present structural problems with the existing regime.
What can be done to improve the situation, as previously recommended and advice now being joined in by experts in government finance, is for Louisiana to take its 13 separate systems that apply to state and local employees, and its 20 other systems that deal only with local employees specifically and generally, and combine them. Why must Louisiana have all of these, with their own separate appointed, non-expert boards, when most states have many less and a couple just a single board to oversee all investments?
Hopefully, these funds will get all their funds promised and not place additional burden on taxpayers. But this latest incident should serve as a decisive warning that the present decentralized structure placing too much power in the hands of those lacking expertise carries too much unnecessary risk, and needs reform to erase these shortcomings.
Posted by Jeff Sadow at 07:15