Don’t Be Rhode Island

Last year Diane Bucci, the legislative committee chair for the Rhode Island Teachers Association, told Roll Call: “If you’re connected with billionaires, how do you look at a pension fund? Do you look at people on a fixed income? Or do you look at your friends who can make money from the investments?”

Why am I talking about Rhode Island? Well, Governor Matt Bevin would have you believe that turning Kentucky’s pensions into 401(k)s would save the state money. That’s what voters in Rhode Island thought, too — until they found out differently.

In 2010, Rhode Island’s pension funds were in sorry shape. So, State Treasurer (and later Governor) Gina Raimondo pushed through the same reforms Bevin’s pitching in 2011: force employees into 401(k)s, end annual cost-of-living (COLA) increases, turn the management over to Wall Street.

So what happened in The Ocean State? Well, if you’ll pardon the pun, the ship just sank. As of last year, the pensions were still underfunded — at 59 percent for the teachers and 57 percent for other state employees. Not much better than the 49 percent that caused such a stir in 2010.

But a lot more — and more sinister — had occurred in those six years.  After months of investigation, a Forbes magazine reporter found that 40 percent — yes, almost half! —of the assets of Rhode Island’s pension funds were invested in expensive and very risky offshore hedge and private equity accounts in the Cayman Islands; this allowed the billionaire fund managers to avoid U.S. taxes and allowed investors’ identities  — and the amount of their profiteering — to remain secret. Last year, Rhode Island’s new treasurer redeemed $585 million from eight hedge funds. Seems the investments were a great deal for the financiers (who contributed to Raimondo’s campaigns) — not so much for the employees who believe their pensions looted.

Unfortunately, as there is zero transparency, they have no way to find out. As Edward Siedle of Forbes noted, “Virtually all information regarding the risks, conflicts of interest, investment strategies and performance of the alternative managers has been withheld from the public as ‘proprietary.’” No wonder the Securities and Exchange Commission (SEC) has been asked to investigate!

Just to add insult to injury, Rhode Island’s new pension fund CIO is Alec Stais, fresh from — where else? — Goldman Sachs.

This is what Governor Bevin is asking Kentucky to endure: the strong likelihood of looted pensions, no reduced costs for taxpayers (who can’t even find out how much they’re being fleeced!), state employees seeing their lifelong savings disappear into a billionaire’s offshore slush fund, and, at the end of the day, a pension fund that’s still underfunded. If the money that got siphoned off had just gone to the pension fund instead of Wall Street, Rhode Island’s pension troubles would be over!

But just remember the warning from Diane Bucci of the Rhode Island Teachers Association: “If you’re connected with billionaires, how do you look at a pension fund? Do you look at people on a fixed income? Or do you look at your friends who can make money from the investments?”

Her questions have already been answered in Rhode Island. Let’s not be Rhode Island.