Riley: Magaziner Throws Raimondo Under the Bus
Tuesday, May 03, 2016
Treasurer Seth Magaziner announced this week that the Rhode Island pension fund has been losing money for fiscal year 2016 which has three months left. A loss of 2.1% in the fiscal year 2016 is a whopping 960 basis points or 9.6% behind what is necessary to fund the pension system.
When pressed in a recent Newsmakers interview, “You can’t be happy with that performance,” the Treasurer went into a third grade dissembling followed by a "Hummannah Hummannah" worthy of the late great Jackie Gleason. Mr. Magaziner clarified:
“Well there are years when the market is going to be up and years when the market is going to be down. You know it’s important to look at the long term.” YADDA YADDA
Mr. Magaziner‘s answer was dripping with irony as the market was within 2% of its all-time high. The market as represented by the S&P 500 gained for the calendar year 2015 and is ahead for Fiscal Year 2016. However, the Rhode Island pension fund, under Treasurer Magaziner, has never gained a dime in any calendar year -- or any fiscal year.
The Discount Rate
Later in the interview, Magaziner ruled out lowering the discount rate from 7.5% saying, “The Pension Fund had surpassed the 7.5% minimum 13 out of the last 20 years.” What the heck does that mean? Is he trying to double talk people? The State Pension Fund needs to compound at 7.5% over the next 25 years to make it to 80% funded. It does not need to surpass 7.5% "every once in a while." Mr. Magaziner said before he can make a decision "he must first review an experience study in March or April 2017 on whether 7.5% is an appropriate assumption."
Below are some facts about State Pension fund returns over the last 10 years and under the Raimondo/Magaziner plan. These could possibly help the Investment commission make a decision. Apparently Mr. Magaziner didn’t want to bring his self-proclaimed 30% returns from Trillium to the State of Rhode Island.
HEDGE FUND DEBACLE
Hedge Fund returns were horrible in March as the market was up 4% and hedge funds lost money. It appears that Mr. Magaziner has finally been embarrassed by his predecessor - that being Gina Raimondo's - misguided strategies and is now struggling to defend the positions against a backdrop of large pension funds completely eliminating their hedge fund investments. Our rookie Treasurer will likely make a move to reduce or eliminate hedge funds in the near future.
Under the Bus
It wasn’t until later in the interview that Mr. Magaziner threw the former Treasurer Raimondo under the bus. Describing his latest efforts to streamline Debt Management for the State, Magaziner explained, "I was alarmed at how poorly debt was being managed. We have $12 billion in debt that is issued by 100 different entities and no one has been looking at it.”
"As an example we recently auctioned in a competitive auction voter approved debt. The competitive process produced millions in savings. That was the first time in a decade we have done that. We must take a look at debt management and we just haven’t done that.”
Isn’t the previous Treasurer our current Governor Raimondo? Are you saying that Ms. Raimondo missed millions in savings by not understanding the competitive auction process? That is quite alarming, someone might have said.
How much was lost by not doing things the right way?
Related Slideshow: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:
1. An established minimum retirment age of 59 for all state and municipal employees.
2. Elimination of cost-of-living increases.
3. Conversion of new hires into a 401(k) style plan.
See WPRI's coverage of Carcieri's proposal here.
Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions.
Read the NCSL report here
(Photo: FutUndBeidl, Flickr)
Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.
"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo
Check out Wall Street Journal's coverage here.
Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot.
Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.
Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.
Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.
"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)
Read GoLocalProv's analysis of the report here.
Read the Truth in Numbers report here.
Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.
“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee
Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.
“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)
Read more from the firefighters' battle with Raimondo here.
Check out the New York Times' take on RI's pension crisis here.
November 17, 2011
The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.
Read more from GoLocalProv here.
November 18, 2011
Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.
Read about how Rhode Islanders react to RIRSA here.
Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms. The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.
Read about the pension workshop here.
Read Raimondo's feature in Institutional Investor here.
March - April 2012
Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.
December 5, 2012
Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package. In response, Chafee issues a statement supporting the negotiations.
Read more about Raimondo's opposition here.
Read about Chafee's statement https://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here.
Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.
Read about Raimondo's discussion of distressed municipalities here.
The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.
"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)
Read GoLocalProv's coverage of the State Pension Fund's losses here.
Read Ted Seidle's criticism of Raimondo in Forbes.
Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.
Read GoLocalProv's investigation into the rising pension costs here.
Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform.
Read Taibbi's article in Rolling Stone.
Read GoLocalProv's response to Taibbi here.
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