Posted on: Thursday, April 25, 2002
EDITORIAL
Performance audit of ERS is merited
The Employees' Retirement System is simply too big and too important to allow the possibility of slipshod management. Its $8.4 billion nest egg must, through prudent but intelligent investment, grow enough to pay the pensions of more than 30,000 former state employees and beneficiaries.
The immediate cause for lawmakers' concern is what has too many earmarks of a cozy relationship between the ERS board and one of its investment managers. Former ERS administrator Stanley Siu is a partner and manager of business development for 3Bridge, which in recent years has been one of the worst-performing managers in the ERS portfolio.
As a result of that investment, not to mention increasing payouts to retirees and terrible market conditions that have plagued every investor in the last couple of years, ERS investments have failed to reach their targeted levels. That situation alone is cause enough to have a close look at ERS practices.
But if lawmakers are going to put up the money for a performance audit, they should insist on the whole enchilada. Actions of lawmakers themselves, ranging from changing the assumptions controlling the state's contribution to the retirement fund to skimming earnings above 10 percent and requiring that the fund invest in questionable local enterprises, have been no less a threat to the ability of the ERS to meet its obligations over the years. Some of those practices are now the subject of a class-action lawsuit filed by union members.
It's reassuring to hear Sen. Colleen Hanabusa say that pensioners shouldn't be too concerned about skimming from the fund because the state will always keep enough money in the ERS to pay retirees' benefits. But the fact is that if the state's annual contribution to the fund is insufficient and if the return on invested funds is insufficient, the ERS will be unable to meet its obligations. At that point, state lawmakers would be powerless to prevent a shameful default.
While they're at it, a performance audit should examine delivery of pensions to retirees for efficiency, accuracy and promptness. We have heard complaints of recent retirees waiting more than two years for calculation of their benefits.
A performance audit, in the words of Toby Martyn, chairman of the ERS board of trustees, "would only reconfirm the challenges that ERS trustees and staff are already acutely aware of and are in the process of addressing." Such an outcome would be comforting indeed and money well spent.
If Martyn is right, there's nothing to fear and everything to gain from subjecting the ERS — and the political atmosphere within which it operates — to intense scrutiny.
