Forbes:Kentucky State Pension Contacts SEC Regarding Millions Paid to "Secret Agents"

Kentucky State Pension Contacts SEC Regarding Millions Paid to "Secret Agents"


Two days ago I submitted to the SEC a report that I had written entitled, Report of Independent Counsel to SEC: Placement Agent Abuses at Kentucky Retirement System.

In a press release today the Kentucky Retirement Systems, angered at the findings in my report, announced to the world that it had forwarded my SEC report …drum-roll … “to the SEC for its consideration.” They could have saved the postage. After 30 years of dealing with public pension boards, I continue to be amazed at their wildly irrational and defensive responses to legitimate, especially expert, criticisms.

In my report, I concluded that approximately $14 million in undisclosed payments made in connection with the state pension’s investments—millions secretly paid to agents that provided little or no services to the pension—should be recovered. In my opinion, which should come as no surprise (since I am a former SEC attorney), public pensions cannot afford and should not be paying “secret agents” millions for doing virtually nothing. Yet, prior to my independent investigation on behalf of a whistleblower trustee of the fund, KRS and the Kentucky Auditor of Public Accounts, through tortuous reasoning, had concluded that millions in secret payments for doing nothing harmed no one. It seems Kentuckians are incredibly wealthy, generous and forgiving. Unfortunately for KRS and the state auditor, the SEC apparently disagrees and is now investigating the payments to placement agents.

According to the Pew Center on the States 2010, “Kentucky’s six pension systems had a combined funding level of 63.8 percent, and a total liability of $34 billion in fiscal year 2008. The Bluegrass State had an unfunded liability that was 234 percent of payroll. In 2000, the plans were well funded at 110 percent, but years of the state substantially underfunding its actuarially required contribution, plus significant benefit increases, led the funding level to plummet. This problem was compounded by unfunded, automatic cost-of-living adjustments for retirees’ pensions and incentives that were offered for early retirement.”

Add to the list of factors compounding Kentucky’s public pension problems: boards of trustees that would rather defend than resolve ethical oversights.