State pension funds across the U.S. have been crushed by careless investments that suffered massive losses after the property market crashed. In Louisiana, a retirement fund for policemen went from covering all of its obligations to losing more than 80%:
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.
Investment advisers with conflicts of interest who sought exorbitant fees have been blamed for the meltdown:
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.”
Last year, officials at the nation's largest public pension fund, CalPERS, were sued for fraud by the attorney general:
The lawsuit against the former officials at CalPERS, announced Thursday, is the product of an investigation into the role of so-called placement agents, the middlemen hired by money-management firms to help them win business with investors.
The alleged kickback scheme raises questions about whether CalPERS board members and investment officers had the best interests of the state's pensioners at heart when they made investment decisions for the fund.
An investigation into a similar scheme run through New York's pension fund resulted in the imprisonment of a former state comptroller. The nationwide probe has resulted in eight guilty pleas including the founder of a Dallas private equity firm.