Riley: Elorza Purposely Underfunds Disastrous Providence Pension Plans

Tuesday, May 08, 2018

Michael G. Riley, GoLocalProv MINDSETTER™

Jorge Elorza

Should Mayor Elorza explain to Bill Gates, Charlie Munger, and Warren Buffet why they are currently wrong and Elorza’s 8% investment return prediction is right? Here is Gates opinion in 2016 when Elorza acting as lead fiduciary for Providence pension plan used an 8.5% return assumption massively underfunding Providence pension plans.

Elorza Purposely Underfunding Pensions

Elorza -- who touts himself as an “accountant” -- fully understands that overstating the assumed investment return reduces the amount of funding from the city to support the plan and its retirees.

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Therefore, his behavior has been purposely underfunding the pension plan in order to spend money elsewhere.

From NASRA (National Association of State Retirement Administrators):

“The investment return assumption is the single most consequential of all actuarial assumptions in terms of its effect on a pension plan’s finances. The sustained period of low-interest rates since 2009 has caused many public pension plans to re-evaluate their long-term expected investment returns, leading to an unprecedented number of reductions in plan investment return assumptions. Absent other changes, a lower investment return assumption increases both the plan’s unfunded liabilities and cost. The process for evaluating a pension plan’s investment return assumption should include abundant input and feedback from professional experts and actuaries and should reflect consideration of the factors prescribed in actuarial standards of practice.”

There have been multiple warnings on this same issue that Mayor Elorza ignores and violates. Here is Gates once again explaining basic economics and investment return expectations yesterday morning May 7, 2018, with both Warren Buffett and Charlie Munger agreeing.

Raimondo Refuses to Audit Providence

It is clear that even in “Elorza world”, located somewhere outside “delusionville,” Elorza is well aware that his investment return assumptions for the last 4 years have systematically and purposely underfunded Providence which has gained the dubious distinction of the worst-funded municipal pension system of any state capital in the United States. It has taken place all under his watch and he has done it on purpose. If he knows that is the case, the question is why does he do it? It would be nice if he was ever asked that question by the media because according to him, finances are fine and there is no cash flow problem.

This complete disconnect from the reality of Providence's Mayor is why many think Governor Raimondo should demand an independent forensic accounting of Providence and the pension system. I suspect hundreds of millions of dollars of shady accounting, misleading reporting and misappropriated public funds over the last 12 years by Cicilline, Taveras and now Elorza. We know Elorza is a selfish politician interested only in survival, but Gina Raimondo has Presidential aspirations and for her to ignore the bankrupt state capital shows a lack of leadership and diligence that only adds to her poor record on 38 Studios.

Riley: Elorza Purposely Underfunds Disastrous Providence Pension Plans

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