Audit fires up New Orleans’ pension controversy
Should taxpayers be responsible for soaring costs in a pension fund that has been mismanaged by its trustees, many of whom are government workers elected by their colleagues to run the retirement system? That’s the debate playing out in New Orleans, where Mayor Mitch Landrieu has balked at a judge’s order that he increase payments into the city’s struggling Firefighters’ Pension and Relief Fund because, Landrieu argues, taxpayers shouldn’t be responsible for the mess in the fund. A new audit illustrates what Landrieu is complaining about.
According to the independent audit obtained by the Times-Picayune, the pension fund’s value has declined by about half, or $85 million, since 2010. The fund lost a staggering $40 million in 2013 alone. Among the losses was some $15 million invested in a hedge fund based in the Cayman Islands that went bust. The fund has also lost some $20 million on investments in golf courses.
As the pension fund’s assets have declined, its actuaries demanded higher payments from the city. Landrieu has responded by sending less than typically requested. Last year, for instance, an actuary calculated the city owed the fund $34 million. Landrieu sent $9 million. A judge has ordered the city to pay up, but Landrieu has been defiant, saying that the pension system in its current format is unsustainable and he won’t pump more money into the fund without reforms that bring the pension system under city control.
The firefighters pension fund, created by state legislation, is a classic case of a government employee pension fund designed without the taxpayer in mind. The board of trustees for years has consisted of 10 members, eight of whom were elected by employees and retirees, with two more appointed by the mayor.
Last year the state legislature approved a new board structure which reduces the number of employee-elected representatives to four, and increases to three the number of mayoral appointments. And finally, in response to criticisms of the way the system was run, firefighters and retirees last year voted out many of the board’s longest-serving trustees.
Landrieu doesn’t think that’s enough reform, however, and wants changes that put control in the mayor’s hands, not members of the retirement system elected by their colleagues.
Other government pension funds with substantial representation on the board by employee members have run into trouble recently. Detroit’s pension trustees continued doling out bonus benefit checks to members even as the city headed to bankruptcy. Calpers, with six board members elected by employees and retirees, has faced a host of criticisms over its governance, including accusations that the Calpers board left out crucial information about the risks to taxpayers when lobbying for a 1999 increase in benefits for government employees.
The question that voters should ask themselves is, who are the representatives of taxpayers on these boards?