Auditors will ask: Is Florida’s $137B pension fund safe?
Dec 14, 2007
Orlando Sentinel, 12/14/2007
Is state’s $137B pension fund OK?
TALLAHASSEE – The state is expanding its audit of the troubled local-government investment fund to include Florida’s mammoth $137 billion pension fund — which bought some of the same downgraded mortgage-backed securities.
On Wednesday, Florida Department of Management Services Secretary Linda South asked auditors reviewing the state-run Local Government Investment Pool to expand their inquiry to the state’s largest investment fund.
‘I would ask that you also try to look at the gorilla,’ she told the State Board of Administration’s audit committee.
Last week, the SBA disclosed that the Florida Retirement System had $756 million invested in securities issued by six shaky, mortgage-backed lenders that had been downgraded below purchasing guidelines. That represents about half of 1 percent of the total pension fund but 8 percent of the liquid cash on hand to pay monthly checks to 990,000 retired state, county, city, school and public-safety employees.
In November, the fund paid out about $379 million in pension and health benefits.
State officials have expressed confidence that the pension fund is at no risk because of its longer-term investment strategies.
South, whose department has responsibility for state personnel and pension payments, said the state had an obligation to make sure there was no risk.
‘I have no concerns or information that there is a liquidity issue, but I’m not allowed to rely on how I feel. I need to know,’ she said, adding, ‘I’m not interested in a witch hunt, and I’m not expecting to find anything that causes us embarrassment or concern.’
South said afterward she learned of the downgraded investments last week at the same time they were disclosed to the public and media.
State auditors Wednesday began developing a plan for auditing the investment decisions by the agency’s top brass.
The audit committee — made up of the inspectors general from the offices of the governor, attorney general and chief financial officer — was asked by Chief Financial Officer Alex Sink to get to the bottom of what happened in the battered Local Government Investment Pool. Withdrawals by nervous local governments, concerned about the down-rated investments, dropped the pool balance from $27 billion on Nov. 1 to about $12 billion following a temporary freeze last week.
Among the questions the investigation will try to answer:
Who sold the SBA the $2 billion in battered securities with ties to the subprime-mortgage industry? Did the purchases comply with state law and investment guidelines? Was there pressure applied on money managers to take risks? And did the SBA fully disclose the mortgage-backed investments to the cities, counties and schools that sank billions of dollars into the fund?
Gov. Charlie Crist’s chief inspector general, Melinda Miguel, summed up the task as, ‘Who knew what, when, and when was it reported?’
Aaron Deslatte can be reached at adeslatte@orlandosentinel.com
Copyright 2007, Orlando Sentinel