NORTH PROVIDENCE â€” Rhode Islandâ€™s much-vaunted pension reform law amounts to a â€śWall Street wealth transfer schemeâ€ť that General Treasurer Gina Raimondo knowingly participated in, according to the author of a report commissioned by the stateâ€™s largest public employee union and written by an acknowledged foe of hedge funds who has feuded with Raimondo for much of this year.
â€śDollar for dollar, workersâ€™ retirement savings are going to hedge fund billionaires; there is no pension reform going on here,â€ť asserted the reportâ€™s author, Ted Siedle, president of Benchmark Financial Services, and a blogger for the Forbes magazine website.
The 104-page report, titled â€śRhode Island Public Pension Reform: Wall Streetâ€™s License to Steal,â€ť attacks the treasurer professionally and personally, lambasting her for alleged conflicts of interest and refusing to disclose information about the pension fundâ€™s investments and who benefits financially from them. It was issued Thursday at the headquarters of Council 94 AFSCME. The full report can be downloaded at www.ricouncil94.org.
A written statement from Raimondo spokeswoman Joy Fox blasts the report as â€śclearly another political propaganda piece aimed at discrediting the treasurer and the stateâ€™s pension reforms.
â€śThe biggest innuendo,â€ť Fox added, â€śis the false accusation that the treasurer is using her position to enrich herself or that the state pension fund is not well-managed. These false personal and political attacks are red herrings intended to undermine pension reform.
â€śThe hypocrisy of this political attack is overwhelming,â€ť Fox continued. â€śThe City of Providence, the stateâ€™s second largest public pension fund, has also suspended cost-of-living-adjustments, has a higher percentage of its pension fund invested in hedge funds and publishes less information than the state about the fees, investment portfolio, and investment commission actions.
â€śDespite all this, Ted Siedle is not being paid tens of thousands of dollars to criticize the City of Providenceâ€™s fund. The reason for this is clear: this isnâ€™t about investment strategies, itâ€™s about attacking the treasurer and pension reform.â€ť
â€śIt is time to stop using pensions as a political football and instead put the best interests of our valuable state employees and teachers first,â€ť she said. â€śThe political temptation is to go backwards, but letâ€™s move forward to avoid hurting people, just as they were hurt in Central Falls when pension checks were cut in half.â€ť
Fox said it is important to remember that:
â€˘ The treasurer fought to always keep a defined benefit pension, and always respected collective bargaining.
â€˘ Reform passed overwhelmingly in a Democrat-controlled General Assembly.
â€˘ All but one vote to approve the hedge funds were unanimous. The only vote to approve hedge funds that was not unanimous was due to one abstention â€” â€śagain, showing strong SIC support to execute this investment strategy.â€ť
The â€ślicenses to steal,â€ť Siedle told a roomful of reporters, are â€śsecret dealsâ€ť that Raimondo has entered into with â€śhedge fund major investors, allowing them to profit at the expense of the state pension fund.â€ť
Siedle and Council 94 President J. Michael Downey said AFSCME will ask the U.S. Securities and Exchange Commission for a formal investigation into the reportâ€™s charges.
Among the things they want investigated, Siedle said, are, â€śWho are these mystery investors who are being allowed to profit off the state pension fund and are they in any way connected to public officials?â€ť
The report cites â€śa sinister pall of secrecy regarding fundamental investment information related to the (pension fund) such as the level of investment advisory, performance and other fees paid for money management, the risks related to hedge, private equity and venture capital strategiesâ€ť that Siedle claims made this â€śone of the most difficult investigations I have done.â€ť
The report opens with the provocative statement that: â€śTwo years ago, Rhode Islandâ€™s state pension fund fell victim to a Wall Street coup. It happened when Gina Raimondo, a venture capital manager with an uncertain investment track record of only a few years â€¦ got herself elected as the General Treasurer of the State of Rhode Island with the financial backing of out-of-state hedge fund managers.â€ť
The major bone of contention the unions have with the pension reform law passed in 2011 is that it eliminates annual cost of living adjustments (COLA) until various state pension funds reach an 80 percent level of funding. Several public employee unions challenged the law in court, and now the unions, Raimondo and the Chafee administration are engaged in mediation in an effort to resolve the dispute.
With fees and other expenses paid to hedge fund and other alternative managers now estimated at $70 million annually, the report states, a lagging investment performance by the fund and plans to lower for the second time the estimated rate of return for the fund, â€śthe likelihood that any meaningful COLA will ever be paid in the future under the new statutory scheme is remote â€“ a fact which has not been shared with workers and retirees.â€ť
The report says that the projected cost to the fund of Raimondoâ€™s â€ś$2 billion alternative investment gambleâ€ť over the next 20 years could be â€śin excess of $3 billion and far exceeds the COLA savings the treasurer has projected â€“ another inconvenient truth that, to date, has been withheld from the public.â€ť
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