Expensive Money Managers Cost LA State Pensions $500 Million

March 1, 2004 (PLANSPONSOR.com) - High-risk equity positions handled by high-priced money managers costs two of Louisiana's pension systems $500 million over seven years.

The loss was calculated comparing investments made by the Teachers Retirement System of Louisiana (TRSL) and Louisiana State Employees’ Retirement System (LASERS) versus investments in lower-risk, broad-based packages that would have given the two funds the same, or better, return over the seven year period.   Now the two pension funds, in addition to two other state pension funds – covering State Police and school employees, respectively – will need a $1 billion infusion from the state government and school boards in the coming budget year , Legislative Fiscal Officer Johnny Rombach told the state legislature’s joint budge committee, according to an Associated Press report.

Further, Rombach said that unless action was taken to change the way the state pension funds make investment decisions, Louisiana’s retirement tab will keep rising, leaving a huge bill in the 2020s.   In part, that is due to the structure of the state’s pension funds, which rely on investment returns to cover not only operational costs associated with running public-employee pension plans but also a 40-year note taken to pay retirement debt through 1988.   Among the pension reform actions Rombach recommended:

  • re-establishing legislative oversight
  • establishing one agency for all state investments, using in-house state employees or in-state companies to make the investments
  • putting at least 80% of pension money in lower-risk, broad-based investments
  • borrowing money at current low rates through bonds to pay old retirement debt, reducing interest.

In addition, Rombach said state lawmakers should get the legislative auditor to study the relationships between investment contractors and board members – especially what gifts board members get from investment contractors.   This follows findings by the Louisiana state Ethics Board that fund managerHicks Muse Tate & Furst   violated ethics laws in its dealings with the state’s teacher pension fund, which lead to the dismissal of the fund’s former executive director (See  LA Ethics Board Ruling Supports Former Director’s Charges ).

The ethics probe found that from 1999 through 2001, former director James Hadley attended four meetings hosted by Hicks Muse in Dallas, which continued as meetings and social events at the Hicks Muse hunting camp. Hadley also participated in four other Hicks Muse gatherings in Palm Springs or Sante Fe, which included golf outings, the ethics report said. Likewise, from 1999 through 2001, board member William Baker attended five Hicks Muse meetings in Dallas, three of which continued as meetings and social events at the Hicks Muse hunting camp. Further, Baker participated in three other Hicks Muse meetings in Palm Springs, which included golf outings, ethics investigators said.

TRSL’s board of trustees fired Minturn last summer, almost six months to the day before the Ethics Board ruling. At the time, TRSL board chairman Jerry Baudin and others said Minturn was simply not a good fit for TRSL (See  Fired La. Pension Head: I Wasn’t There to Make Friends ).