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Commentary: Police Pension Funds Blown on Bad Investments, Taxpayers Stuck With Bill

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Lack of accountability in state’s pension plans allows trustees to lose tens of millions of dollars

A recent report from Bloomberg News illustrates how police pensions have rapidly deteriorated in Louisiana. Three trustees of the state’s Municipal Police Employees’ Retirement System (MPERS) took control of the pension plan, made disastrous investments, and frittered away tens of millions of dollars. The report also demonstrates the astonishing lack of oversight and transparency that allowed such reckless expenditure of taxpayer money to continue.

In 1999, three members of MPERS’s board of trustees decided to invest pension funds in an unfinished country club in North Louisiana. They bought the still-under construction property for $6 million dollars, $400,000 more than a hired consulting firm advised. Since this purchase, MPERS has invested $15.3 million to maintain the club, while the club’s appraised value has fallen to $3.2 million.

For the fiscal year ending in June 2001, the MPERS system still had a surplus of $141 million. By 2002, these poor investments decisions turned that into a deficit of $195.2 million. MPERS responded in 2003 by relaxing investment standards to allow for higher risk and potentially greater returns. They also doubled the period for MPERS to pay back its unfunded liability to 30 years.

In 2003, the trustees also hired their Chief Investment Officer as their actuary, built a $3 million headquarters to accommodate their staff of six, and invested over $70 million into hedge funds, which require large initial investments and essentially operate with high-risk techniques. These particular investment aggregations have received criticism for their relative lack of transparency and regulatory oversight compared to mutual funds.

Ultimately, the trustees spent $73.4 million on properties which are now worth only $11.7 million.

MPERS gambled with public money, and lost. If this were a private company, these disastrous mistakes would surely result in bankruptcy. This outrage demands reforms that don’t leave the taxpayers with the bill for the shortsighted decisions of a select few.

Having taxpayers increase contributions to help cover pension benefits, losses, and expenses is not a tenable solution. Doing so would only further punish taxpayers, who already pay 56 percent of state police pensions, while doing nothing to increase accountability.

Meanwhile, the state has relatively simple options at its disposal that would raise accountability and transparency in the pension process, namely, raising individual contributions to 10 percent from 7.5 percent. This is the preferred option, rather than making taxpayers dole out more money.

Furthermore, it would be beneficial to reconstitute the board of trustees to include mandatory legislative oversight. In the past, as the story notes, the board nominally included two “honorary ”members from the state legislature. However, neither of these representatives went to a single board meeting over the last decade. Including representatives from the Legislature or state departments would help ensure accountability over these publicly held pensions.

MPERS operates with the public’s money, which it ought to use responsibly and efficiently. Only the implementation of legislative reforms to increase oversight and decrease taxpayers’ burden will allow this goal to be accomplished.

Jamison Beuerman is a contributing writer and policy analyst at the Pelican Institute for Public Policy. He can be reached via email at jbeuerman@pelicaninstitute.org or on Twitter @jbeuerman.

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