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Yale professor Jeffrey
Sonnenfeld and his merry band
of researchers have discovered that Connecticut’s pension funds “have one of
the worst investment track records of any state in the nation with long-term,
chronic investment underperformance.”
How bad is it?
Sonnefeld writes, “With
$40 billion in assets — largely the pooled retirement savings of the state’s
hardworking teachers, firefighters and public employees — if Connecticut’s
investments had yielded just the median returns of all 50 states, the past five
years, we would have had $5 billion more and be able to cut
taxes by 50 percent instead of 0.5 percent. Connecticut would have
reaped a whopping $27 billion more over the last decade — practically
enough to fully fund Connecticut’s pension obligations while simultaneously
dramatically reducing taxes.”
A $27 billion loss
of returns is not insignificant. Yet, to judge from the shallow reporting on
the loss, one would think that the startling
report and the meager media follow-up was as dispensable as the $27
billion, which might have been used to pay down Connecticut’s massive pension
liabilities.
Some people were
poorly administering pension funds for, say, 30 years.
Sonnefeld leaves the
mentioning of culprits to others, but he does point out, “While the legislature
battles over thousands of dollars or even millions on needed
expenditures, billions of dollars were lost on terrible investments —
investment errors that 49 other states somehow avoided (emphasis mine).Connecticut’s
previous treasurers provided this state, consistently, with one of the single
worst investment track records of all 50 states, as our Yale research team
found through an original, comparative 50-state analysis of state pension
fund investment performance.”
Sonnefeld offers
five recommendations to fix Connecticut’s low return pension fund investments,
none of which involve hitching to public stocks previous fund investment
managers and their political overseers – the state’s last two Democrat
treasurers, Denise Nappier (1999-2019) and Shawn Wooden (2019-2023), both of
whom have retired – so that frustrated beneficiaries of the funds, “the state’s
teachers, firefighters and public employees” might pelt the incompetents with
tomatoes on the north lawn of the state capitol building.
Sonnefeld’s
recommendations, almost certain to gather dust on political shelves where sound
solutions regularly expire, include 1) “Careful and accountable asset
manager selection – picking top-tier asset managers and dropping worst
performers,” 2) “Change the asset mix,” 3)
“Consider shifting into more low-cost index funds,” 4) “Increase the
transparency of performance,” and 5) “Enhance
talent recruitment into the treasurer’s team.”
All the solutions proposed by Sonnefeld might easily have
been implemented 22 years ago by watchful and competent pension managers and
their overseers. Ordinary competence would have, in Sonnefeld’s words, "reaped a whopping $27 billion more over
the last decade — practically enough to fully fund Connecticut’s pension
obligations while simultaneously dramatically reducing taxes (emphasis mine).”
But you cannot reap
what you do not sow.
Nappier was elected
Treasurer following a scandal that ensnared her predecessor.
According to the State
Treasurer’s site, “Denise
Nappier, following the kickback and corruption scandal involving her
predecessor, proposed a comprehensive Treasury Reform agenda to the 2000 session
of the Connecticut General Assembly, building on her efforts to return
integrity, professionalism and high standards to the Treasury.”
An
Investment Policy Statement for the State of Connecticut Retirement Plans &
Trust Funds authored by her
successor, Shawn Wooden, runs to 222 pages of densely packed prose.
But neither Nappier
nor Wooden betrayed, during their combined 22 years overseeing the state’s
pension plans, the slightest hint that in year 2023 pension funds invested by
incompetent managers and Treasury overseers would leave on the table, over a 10
year period, more than $27 billion of easily acquired assets, a testimony to
rank, not to say criminal, incompetence.
Some incompetent managers are born incompetent, some have
incompetence thrust upon them. And the lucky incompetents, hiding themselves
behind a shield of glowing campaign vows, are elected to office by an
uninformed electorate.
It is not generally mentioned that for 20 years after
Connecticut’s pension fund had been established, no money was put into the
fund. Years later, the money held in the pension fund lockbox was raided by tax
pirates and disbursed to favored groups.
Now this: The general public, and shocked administrators of
the pension fund, discover that the funds had been poorly administered during
the terms of the last two Democrat Treasurers.
Apparently, some politicians are convinced that, with the
sufferance of an obliging media, they can fool all of the people all of the
time.
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