Local city investment boards don’t have a clue

Earlier this month, Eyewitness News did an investigative study spearheaded by Tim White and Ted Nesi. The reporters focused on locally-managed pension funds and their rates of return and fees. In all, 24 municipalities manage plans for municipal workers, and the results of this investigation show that many investment boards don’t have a clue as to their fiduciary duties. Here are some results in the towns and cities where this newspaper is circulated.
The Target 12 investigators noted that Bristol had a return of 1.68 percent for the year ending on June 30, 2012 net of fees, 3.84 percent as a 5-year average and 6.30 percent for a 10-year period. This mirrors pretty closely the state’s 10-year average of 6.60 percent but still, this is nothing to write home about. Most actuaries calculate the security ratio of pensions using a 7.5 percent rate of return. Bristol has one of the top three highest fees paid to investment managers for fiscal years 2009-2010 and 2010-2011.
GoLocal Prov pegged East Providence  as the 7th most taxed municipality in the state. Its pension return performance is abysmal. The 1 year return net of fees for the fiscal year ending in June 30,2012 was a negative (-3.29 percent). Neither their investment board nor city leaders could (or would) provide the rate of return for either 5 years or 10 years. As taxpayers and retirees know, they have to pony up to make up the difference when pension assets underperform. The lack of viable returns for the pension is just one more example of the fiscal woes plaguing the city.
Rates of return net of fees for Little Compton’s pension investment was 1.30 percent as of the end of the fiscal year June 30, 2012. The rate of return was 3.80 percent for 5 years and 5.30 percent for 10 years, respectively. This isn’t exactly a barn burner.
Tiverton has had a tough  trek. The rate of return net of fees effective June 30, 2012 was, as with East Providence, negative, (-3.45 percent). The 5-year average was an antiseptic 0.22 percent and the 10 year was 3.45 percent. Tiverton also pays among the highest fees for investment managers. This performance — or more accurately the lack thereof given the fees incurred — needs to be re-evaluated.
If you do not find your city or town here, it  probably is a participant in the state-run pension. Query whether this should be the direction for these municipalities who run their own pension to take. Entry comes with the proviso that they have to be fully funded before joining the state.
Messrs. White and Nesi did a huge favor for the state by reporting this story. It doesn’t take a Mensa member to wonder about patronism driving the selection of money managers in those burgs that don’t know what they spent on fees, or what bang for the buck each got. The fact that  some of the respective investment boards couldn’t even glean the information for Channel 12 shows a lack of understanding of their fiduciary duties. Their members should be replaced forthwith.
Investment boards have a fiduciary responsibility to the pensioners present and in the future. It’s about time they start showing some due diligence.


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