Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 12, 1993 TAG: 9309120017
SECTION: NATIONAL/INTERNATIONAL PAGE: A-9 EDITION: METRO
SOURCE: The Washington Post
DATELINE: WASHINGTON LENGTH: Medium
From Virginia to Texas to Washington state, investigators are examining problems with the way investment decisions have been made in dozens of pension plans and considering what changes are needed.
Criminal probes in some states are focusing on theft of pension funds and hidden conflicts of interest, while legislators are busily devising reforms to boost investment performance and the confidence of retirees and taxpayers.
The stepped-up scrutiny comes as the amount of money in city and state employee pension plans passes $1 trillion. "These funds have grown a lot faster and become a lot larger than the people that were running them really prepared for," said Basil Schwan, executive director of the state of Washington Investment Board. "I see it as a sort of awakening."
Legislative efforts are under way in Virginia and in the District of Columbia to review the operations of major public employee pension funds that together control about $17 billion. A criminal investigation also is under way into the relationship between the Virginia Retirement System and its outside financial and legal advisers.
Deborah Love-Bryant, chief of staff in the office of the Virginia state attorney general, said her office was assisting the federal investigation.
A spokeswoman for Gov. Douglas Wilder, who appoints all members of the pension fund's board, has said he welcomed the probe, which began in April of this year.
Robert Cerasoli, inspector general for Massachusetts, issued a scathing report last month which said pension fund officials had hired outside financial advisers based on friendships and political relationships, rather than competitive bidding, and then created phony, backdated documents to conceal the fact that they had not adequately researched the firms' performance in advance.
Unlike corporate pension funds, which are governed by a strict federal law with tough criminal sanctions, public pension plans are not subject to the same standards. "These types of problems seem to be appearing in many states," Cerasoli said. "It cries out for reform nationally."
One state official who participated in the Massachusetts cover-up resigned after release of the inspector general's report.
Elsewhere, the problems of public pension funds have led to major reforms and criminal charges. In Minnesota, former employees of the Minneapolis Employees Retirement Fund pleaded guilty to embezzlement, while the fund's former staff director made millions of dollars of risky investments which he concealed from the pension fund's board.
In Texas, the $34 billion state teachers retirement fund adopted new rules this year after the state attorney general issued a report that said the fund had conflicts of interest that led to hundreds of millions of dollars of losses.
by CNB