Making long-term investment decisions for a pension fund can be a challenging endeavor, no question. But it’s equally clear that common-sense principles need to be the guide: Have qualified professional analysts thoroughly vet any investment options. Be mindful not to expose the fund to major undue risk. Be wary of locking in risky long-term financial obligations.
In short — be prudent.
Lamentably, the trustees and administrator overseeing the Omaha Public Schools’ pension fund failed abysmally at that obligation over the past decade. As explained in an investigative package by The World-Herald’s Henry Cordes, the officials’ investment decisions in the wake of the 2008-09 recession were marked by extraordinary recklessness.
The Omaha School Employees’ Retirement System’s trustees and administrator shifted pension investments out of traditional stocks and bonds so excessively that OPS largely missed out on the post-recession market recovery. The pension overseers instead poured millions into questionable, poorly vetted alternative investments that in many cases failed to deliver on the promised results. Several actually lost money.
It’s painful to read the strange set of far-flung junk-bond investments approved by the pension managers: Real estate in Mumbai, India. International shipping. Ukrainian agriculture. Oil companies in Kazakhstan and Brazil. Timberlands in Tennessee. Distressed housing in Florida, New Jersey and Nevada.
“They wanted less volatility, so they go to 50 percent alternatives?” said Gary Anderson, the retired former director of one of the largest public pension funds in Texas. “That’s the craziest thing I ever heard.”
In the wake of this mismanagement, the OPS pension fund’s unfunded liabilities have worsened year after year. From a manageable liability of $138 million in 2008, the fund’s shortfall has ballooned to a staggering $771 million. The OPS pension fund’s current 10-year returns rank ninth worst among more than 170 funds nationally, Cordes reported. Its five-year return is the worst in the nation.
The state in 2016 rightly transferred investment authority to the Nebraska Investment Council, which invests assets for statewide pension systems. The council is slowly untangling the alternative investments, but in many cases OPS remains on the hook for long-term contracts and high fees.
Meanwhile, the OPS board is forced to make significant budget cuts to meet its pension obligations. Cuts this year totaled $30 million, of which $19 million was due directly to pension costs. Cutbacks included the loss of 100 paraprofessionals, who provide classroom support, and 21 liaisons who work with families on issues such as attendance. The board said “no” to purchasing a new elementary English textbook and reduced the fund that pays for supplies and field trips.
Possibilities ahead include higher taxes on OPS residents and reduced benefits to future teachers. Keith Brainard of the National Association of State Retirement Administrators, was exactly right when he told Cordes, “This is costing people who can least afford it a lot of money.”
And all the more infuriating because basic guideposts of fund management were so needlessly ignored.