Greenwich’s pension fund is badly in need of reform

Greenwich-Voices-GoldrickGreenwich’s pension fund has a problem of chronically poor investment performance.

According to data supplied by the Retirement Board’s financial adviser, New England Pension Consulting (NEPC), Greenwich’s pension fund underperformed 84% of all public pension funds in its pension fund universe over the past five years. It lagged 81% of all public pension funds over the past seven years. And the trend is continuing in the short term, trailing more than three-quarters (76%) of those funds measured by NEPC over the past three months.

Last year Greenwich taxpayers contributed nearly $20 million to the pension fund, or more than 5% of the town’s operating budget. That represented a nearly $4-million increase over the previous year. Next year, and for several years to come, it is estimated that the annual required contribution (ARC) will exceed $22 million.

A major cause of the increased required contribution to the third of a billion dollar fund is attributable to a decade of poor capital market returns resulting from the “great recession.” However, poor investment performance has also proved a major problem contributor to rising contributions.

Ironically, the increasing contributions come as the town has restricted the number of employees eligible to participate in the defined benefit plan, only permitting new enrollees from the fire and police departments. And new hires in those departments have seen their future benefits reduced as well.

It appears clear that there are structural problems with the pension fund. Unique in Connecticut, Greenwich’s charter requires that the fund adhere not just to the state law regarding investment trusts, but that 40% of the portfolio must also follow restrictions meant for life insurance company investment portfolios.

The hopelessly labyrinthine and unworkable nature of those dual requirements was on clear display recently in a town attorney’s attempts to discern which mutual funds, and which segments of which mutual funds, in which the Retirement Board wished to invest were covered by provisions of which law.

Further, unlike Greenwich’s OPEB (other post-employment benefits) Trust, the pension fund does not explicitly take fees into account when considering investment in mutual funds and private investment vehicles. When I pointed out that the pension fund appeared to be paying high fees for underperforming funds, instead of considering the problem, the board’s reaction was to stop showing fee data in its performance reports.

A fundamental question that needs to be addressed is whether the Retirement Board, comprised of volunteers meeting just one morning a month, can effectively and competitively manage a $340-million portfolio. Certainly investment returns over both the short term and the long term suggest that the current structure isn’t working.

I and the BET’s Republican liaison to the Retirement Board proposed to the BET chairman that we engage a law firm experienced in public pension fund issues to explore alternative structures that could lead to better investment outcomes, while also maintaining fair representation by beneficiaries’ representatives of the plan’s administration. Unfortunately, that proposal was rejected.

The board itself proposed earlier this year to add two investment professionals to assist the one board member with actual portfolio management expertise. That proposal was opposed by the two union representatives, who argued that the board’s membership would become stacked against the representatives of the beneficiaries. The proposal was later deemed to be in violation of the town charter.

It is time to tackle the problems of investment underperformance and reform Greenwich’s pension fund. Years of lagging performance have cost taxpayers millions, and continuing underperformance suggests that millions more will have to be shelled out if the status quo is maintained.

A comprehensive reform plan is needed.

 

Sean Goldrick is a Democratic member of the Board of Estimate and Taxation, though the opinions expressed in this column are his own. He may be reached at [email protected]

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