April 08, 2013 03:41 PM UTC

The Nation's Public Pension COLA-theft Champion Receives her Comeuppance.

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• by: PolDancer

FORBES COLUMNIST LAMBASTES RHODE ISLAND TREASURER GINA RAIMONDO.

RAIMONDO ON COLORADO PERA MANAGEMENT FEES.

In the United States, we have a handful of prominent self-serving politicians who support the breach of public pension contracts.  As we have seen, such politicians serving in the Colorado General Assembly are attempting to take earned, accrued, contracted public pension benefits from a vulnerable group of Colorado residents . . . Colorado PERA pensioners.

Some U.S. politicians seek to advance their own political careers by breaking public pension contracts, some seek further state tax cuts, some want to free up money for state discretionary expenditures.  In Colorado, politicians broke public pension (Colorado PERA) contracts to further reduce state taxation . . . in a state with (nearly) the lowest per capita state tax collections in the nation.  Colorado politicians also have many personal priorities for public program expenditures that supersede the need to meet the state's contractual obligations.

Rhode Island's Treasurer, Gina Raimondo, is apparently directing Rhode Island public pension trust funds to hedge fund cronies, and also hoping to ride her pension contract breach pony all the way to the Governor's mansion.

Edward Siedle, a contributor at Forbes writes:

"According to Institutional Investor, Rhode Island Treasurer, Gina Raimondo is at work solving the nation’s retirement dilemma, showing how tough public pension reforms can pay fiscal and political dividends.  Don’t believe a word of it."

"A look behind the curtain reveals her changes to the investment portfolio of the $7 billion Employee Retirement System of the State of Rhode Island will inevitably dramatically increase both risk and fees paid to alternative investment managers, such as hedge funds and private equity firms."

"There’s no prudent, disciplined investment program at work here—just a blatant Wall Street gorging, while simultaneously pruning state workers’ pension benefits. It’s no surprise that some of Wall Street’s wildest gamblers have backed her so-called pension reform efforts in the state legislature. Former Enron energy trader emerges as a leading advocate for prudent management of state worker pensions? That’s more than a little ironic."

" . . . when alternative investment managers take control of a state pension and recklessly dump pension assets into high-cost, high-risk alternative investments, while they slash workers’ benefits, that’s no reform. Call it what it is: a money grab."

http://www.forbes.com/sites/edwardsiedle/2013/04/04/rhode-island-public-pension-reform-looks-more-like-wall-street-feeding-frenzy/

(My comment: Wall Street Journal: "Hedge Funds Kiss Their Alpha Goodbye":

http://blogs.wsj.com/marketbeat/2011/11/21/hedge-funds-kiss-their-alpha-goodbye/)

Siedle:

"Financial alchemy, whether promoted by Democrats or Republicans, ends up costing the taxpayers dearly."

(My comment: This Siedle remark calls to mind our own Governor Hickenlooper's recent raid on the Colorado PERA trust funds for corporate welfare:

"COLORADO PERA'S LATEST FIASCO."

"News flash for our 'businessman' Governor: By definition, placing an artificial, political restriction on investment options for a portion of the PERA Trust Funds denies PERA members and retirees the benefit of the most productive use of those funds."

"Does the Governor understand that the Colorado PERA trust funds belong to the beneficiaries of the PERA trust? Does the Governor understand that the PERA Trust Funds are not public property to be used to meet public policy goals? [Politicians have been trying to gain access to this ‘pile of money’ for decades.]"

"If Colorado businesses are desperate for capital why do these businesses not take advantage of available historically low market interest rates? Is it simply the case that these businesses are considered too great a risk by private lenders? This risk must be assumed by the beneficiaries of a public pension fund? Public pensions should be forced to invest in businesses that the private sector won't touch?"

"How is it the responsibility of Colorado PERA members and retirees to redress this shortfall of funding for Colorado entrepreneurs by accepting a less favorable risk/reward ratio for a portion of their PERA Trust Fund property?"

"How did the PERA Board go about determining the geographical investment boundaries that offer the greatest risk/reward potential for the investment our PERA trust funds? What analysis was conducted? What advantages did Colorado's borders offer over limiting investment of the funds to venture capital or private equity opportunities in Massachusetts? California? Australia?"

http://thecontributor.com/colorado-peras-latest-fiasco

"The Colorado Mile High Fund [the Fund] is a $50 million co-investment program designed to invest in a diversified, high-quality portfolio of companies with a nexus to Colorado."

"The Fund is sponsored by the Colorado Public Employees’ Retirement Association (Colorado PERA) and is managed by the Credit Suisse Customized Fund Investment Group."

http://coloradomilehighfund.com/)

RHODE ISLAND TREASURER RAIMONDO ON COLORADO PERA FEES.

Raimondo's comments to a local Rhode Island reporter, WPRI reporter (Nesi): "On fees, Colorado’s pension fund says its expenses total less than 0.4% of assets per year. Do you know what the figure is for Rhode Island?"

Raimondo: "No – you’ve got to be very careful with apples to apples in this, so I don’t know what Colorado means when they say that."

http://blogs.wpri.com/2013/04/05/qa-raimondo-fires-back-after-attack-by-forbes-contributor/

Seidle's reaction:

“On fees, Colorado’s pension fund says its expenses total less than 0.4% of assets per year. Do you know what the figure is for Rhode Island?”

"'No,' says Raimondo."

"Ouch."

http://www.forbes.com/sites/edwardsiedle/2013/04/06/rhode-islands-scary-state-treasurer/

Recall that, some months ago, we heard another Forbes journalist call the breach of public pension contracts "theft."  William Baldwin of Forbes Magazine was interviewed in regard to public pension contracts on Fox:

http://www.youtube.com/watch?feature=player_embedded&v=lD-08JZKDa4

In the interview, Mr. Baldwin recommended the prospective pension reform advocated by Professor Amy Monahan of the University of Minnesota School of Law in her paper “Public Pension Plan Reform: The Legal Framework,” i.e., a reduction of the rate of future accrual of public pension benefits for current public employees.

Link to Monahan paper:

http://www.ncsl.org/documents/fiscal/AMonahan_Handout.pdf

Professor Monahan's PROSPECTIVE, "constitutional" public pension reform has been adopted by the Colorado General Assembly (in SB12-149) for certain county-operated public pension plans in Colorado, while RETROACTIVE pension reforms were enacted by the Colorado General Assembly for the Colorado PERA pension system (SB10-001).  This is, of course, a statutory double standard on Colorado public pension contracts.

The Colorado Legislature has placed into Colorado law a policy providing that the contracts and accrued public pension benefits of certain county government retirees in Colorado will be honored, while up to one-third of the contracted pension benefits of Colorado PERA retirees will be seized by the State of Colorado.

Pension reforms adopted by the Colorado General Assembly in SB12-149 represent a "less drastic" alternative to the Legislature's breach of the fully-vested pension contracts of current Colorado PERA retirees.  Such PERA retirees have met all statutory conditions for the receipt of their PERA public pension benefits.  They have fully performed under their PERA public pension contracts.

Here are a few quotations from Mr. Baldwin's interview:

“It is not fair, and it may even be unconstitutional to take away a pension that has already been earned.  That’s just theft.”

“It’s not as sharp a change (401Ks, reduction of future pension accrual rates) as taking away something that has already been earned . . . which I don’t think you can do . . . I don’t think that’s fair.”  “It’s all politics.”

http://blogs.forbes.com/people/baldwin/

More Seidle comments on Raimondo's pension raid:

"Rhode Island's Scary State Treasurer"

Seidle:

"For the record, I was not provided any opportunity to comment on (local Rhode Island reporter) Nesi’s article. I’ve learned to expect as much whenever I criticize highly-politicized public pension investment shenanigans. Local media is usually, shall we say, heavily influenced by local politicians."

(My comment: Local media heavily influenced by local politicians?  When the Colorado Court of Appeals reversed the Denver District Court's ruling in the case Justus v. State last year, the Denver Post inexplicably labeled the reversal [upholding public pension COLA contractual rights in Colorado] a "win" for Colorado PERA, the organization trying to break those same contracts.  When, last year in SB12-149, the Colorado Legislature contradicted its 2010 legislation, SB10-001, which denied the contractual nature of Colorado PERA COLA benefits, we heard not a peep from the Denver Post or any other Colorado media outlet. SB12-149 impacted the retirement benefits of thousands of Colorado county government employees, yet not a word from the Colorado media.  Heavily influenced by local politicians?  To be fair, the Colorado media gives adequate attention to some substantive state legislation.  They did a great job covering designation of the official Colorado amphibian:

Amphibian bill up today in House ag

http://www.gazette.com/articles/inches-134074-salamander-amphibian.html

http://www.chieftain.com/news/region/lawmakers-consider-state-amphibian/article_abf64222-5151-11e1-9a50-001871e3ce6c.html

http://www.9news.com/news/sidetracks/247456/337/Colorado-considers-a-salamander-as-state-amphibian-

http://www.koaa.com/news/colorado-gets-official-state-amphibian-friday/

http://kdvr.com/2012/02/06/bill-to-name-tiger-salamander-state-amphibian-advances/)

Back to Seidle:

"The Ocean State’s Treasurer scares me. I am alarmed by her poor command of pension fundamentals. A phrase I once heard a Catholic priest use when I was in law school at Boston College comes to mind: Her reputation far exceeds her capabilities. This is the woman who is credited with leading the charge for public pension reform nationally?"

"The high-risk alternative investments you have steered the pension into charge exponentially greater fees—fees of about 2% plus 20% of profits or more. Do the math and you’ll agree, the fees the pension will pay have skyrocketed. Mushroomed. Ballooned. Soared."

"That’s good for your Wall Street pals, no-so-good for workers participating in the pension. It’s a little difficult to reconcile your opinion that the state’s pension system can’t afford to pay workers the benefits they were promised but, on the other hand, it can afford to pay Wall Street’s wildest gamblers one hundred times greater fees than it has in the past."

http://www.forbes.com/sites/edwardsiedle/2013/04/06/rhode-islands-scary-state-treasurer/

Public comments on Rhode Island's COLA-theft Champion Raimondo:

Retiree Binyamin Efreom: "My husband is one of the retired state employees affected by Raimondo’s pension steal. Now that he is 70 years old, we are supposed to be able to switch from an income that has a small built-in inflation correction to a fixed income. It’s too late to do that. We have no idea now how much money we have to live on but we are portrayed as the 'evil' unionists. The entire burden for making the pension system stable by Gina’s definition is on us — nothing is on the state. Engage RI enlisted a shell of figureheads financed by a Texas Enron billionaire to spend a million dollars on local advertising diverting attention away from the fact that her legislation bullies and targets the elderly — who do they think the retired people are. Also, despite her cries of state poverty, the state has been running significant surpluses, none of which have been earmarked for the pension fund. Thank you again for providing one lone voice in the wilderness."

(My comment: At least under Colorado's 2010 pension reform bill, SB10-001, the entire burden of the reform is not on Colorado PERA retirees . . . just 90 percent.  Senator Brandon Shaffer, co-prime sponsor, SB10-001, Denver Post, 4-17-11:

“I sponsored last year's legislation, known as Senate Bill 1, to protect PERA. The bill required shared sacrifice, but frankly most of it — 90 percent of the burden — falls on the shoulders of  PERA's current and future members and retirees.”

http://www.denverpost.com/opinion/ci_17858107

This is how it works at the Colorado Legislature: Those who legally owe the debt pay 10 percent,  those who do not owe the debt pay 90 percent.

Note that the Colorado General Assembly has also recently received word of a one-billion surplus for the coming fiscal year.  Does this news motivate the Colorado's Legislature to conserve funds to meet its contractual obligations?  No.  In next year's state budget, Colorado state legislators transfer $142 million to pay for pensions that ARE NOT the state's responsibility . . . NOT their contractual obligation.  These are pension obligations of local governments.  We find more in next year's state budget . . . although the State of Colorado already has the lowest per capita state tax burden in the nation, we see the Senate President planning to further cut Colorado state taxes by up to one-quarter billion over the next three years.  All this, while Colorado argues that a "financial crisis" prevents the state from meeting its contractual PERA obligations.)

Retiree John Oberle: "Thank you for your research into the workings of Treasurer Raimondo’s office. Since my wife and I are both pensioners in the retirement system managed by Ms. Raimondo we are impacted twofold by her action to freeze our COLAs. There is something very unnerving about the way the Treasurer manipulated the members of the media, i.e., the Providence Journal and Ted Nesi. She seems expert at appealing to people’s basest instincts, i.e., jealousy toward teachers and government workers who have fixed pensions while most private industry employees have been forced into 401k’s, IRA’s and Social Security."

"In our case, we were given a piece of paper at retirement by the state retirement system that clearly asked us to choose one of three options offered to retirees. We selected our option and the retirement system official signed it and we signed it. It stated that the third January after our retirement and every January thereafter we would receive a 3 percent COLA compounded annually. We did not make up the form. The retirement system and State legislature did. Now six years later this past January we did not receive the promised COLA’s. We clearly had a contract signed by both parties yet thanks to Ms. Raimondo’s dire predictions the general assembly of the state of RI changed the rules and has withheld the COLA’s. Now we see evidence of outside parties with political agendas were working behind the scenes supporting Treasurer Raimondo’s agenda. Treasurer Raimondo has snookered most Rhode Islanders into placing blame for the pension systems poor financial performance on retired workers although she hypocritically spent two years saying the retirees did nothing wrong, but for the survival of the system drastic actions were needed. Furthermore, she has spent much of her time as Treasurer building up a war chest for an upcoming run for Governor. Thanks again. Hopefully, shedding light on some of the behind the scenes wheeling and dealing taking place here in RI will result in a fairer, more competent functioning of the Treasurer’s office."

Seidle:

"As a testifying expert in multiple Madoff cases, I can assure you that hedge funds INCREASE risk. In fact, every hedge fund offering statement I’ve reviewed in the past 30 years says in bold print, 'These are speculative, high-risk investments.'  Beware of anyone who, like Bernie, tells you otherwise."

Retiree Paul Zecchino: "Thank you for staying on this. Retirees’ lives have been reduced by the cavalier actions of this individual and the curious cabal of cronyistic individuals who apparently direct her steps."

"Search ‘Raimondo’ in the search box here at Forbes at upper right, and you’ll find a most prophetic article by a Mr. Danker with a comment by WH Rosen which clearly states that withholding COLA’s is in effect a closet tax-hike, and is a most unwise move."

"A little googling will turn all this up and quickly produce troubling suggestions that there’s much more to this than merely looting retirees and teachers, the demonizing of them is clearly to shift guilt from the pension manager and EngageRI, but also perhaps to remake the education system in the image of these characters."

"When someone withholds COLA’s that’s curious. When the ones who withhold then viciously demonize and blame the retirees they just reduced for all the world’s ills, that begins to stink of a Constructed Fraud."

Colorado PERA active and retired members.  Support the rule of law in Colorado.  Help Colorado politicians understand that the Contract Clause takes precedence over pet discretionary public programs.  Let them know that Colorado public contracts will not be discarded on a whim.  Contribute at saveperacola.com.  "Friend" Save Pera Cola on Facebook!