Zurik: MERS writes off $118 million in bad investments

NEW ORLEANS (WVUE) - If the leaders of the Municipal Employees Retirement System played baseball, they'd be demoted - way down in the minors.

"This system is in trouble," says State Treasurer John Kennedy. "When you swing for the fences, you're going to strike out.  And they struck out a lot."

But the strike-outs for this system don't come in any game but in real life, with real money, taxpayer money.

"You can hit a home run," Kennedy says.  "You can also strike out.  They struck out 118 million dollars' worth."

That's $118 million, funded by taxpayers and retirees, lost for good.

"It's gone, finished, done," Kennedy says. "This system needs to be cleaned up."

According to the state treasurer, MERS has more than 40 percent of its money in risky investments, from hedge funds to real estate. And many of those risky investments have failed to pay off. Documents show, since 2008, MERS has written off $118 million of investments.

"When you deal with 118 million dollars' worth of write-offs, that's a fancy way of saying they lost the money," Kennedy insists.  "It's gone, it's not coming back. They lost it. It's just like if you went to the casino and, you know, you bet $118 million on blackjack and you lost. You're not going to get it back… This is not a situation of the stocks are just down, if we wait they'll come back up.  This money is gone."

That's more than 10 percent of MERS' assets, written off.

"It's very significant," Kennedy says.  "And it's part of the reason they have an $80 million deficit."

MERS manages investments for cities across the state, including Covington, Mandeville, and Slidell on the north shore...and also Gretna, Hammond...and Thibodaux.  The system has 15,000 members, both current municipal employees and retirees.  So that $118 million comes to a $7,800 loss for each member.

"It's not something to be proud of," Kennedy acknowledges.

MERS' performance is an aberration in Louisiana. The Louisiana State Employees Retirement System and retirement systems for municipal and state police, clerks of court, district attorneys, parochial employees and teachers all responded to our email requests, saying they've had no similar write-offs in recent years.

"It's a huge amount," says State Representative Kevin Pearson, heads the La. House Retirement Committee.

Pearson pushed for the legislative auditor's investigation into MERS. Pearson says these write-offs will impact taxpayers, because all of those cities around the state will have to come up with more money to cover that shortfall. And it impacts retirees, looking for a cost of living increase to their retirement benefit.

"Those retirees are probably not going to see, for quite some time, any increases in their benefit," Pearson says. "Based on the financing of the system, it's not likely to happen for another five, perhaps 10 years."

The investments were made under the direction of executive director Bob Rust. Rust resigned from his job last month after receiving pressure from board members, following our FOX 8 investigation. We showed how Rust may have spent public money on personal trips to the Florida Gulf Coast.  Rust also had thousands of dollars of questionable purchases on his public credit card.

But it's Rust's investment decisions that have a greater impact on retirees and taxpayers. And the impact will be even greater.

MERS hasn't finished writing off investments.  Documents obtained by FOX 8 News show MERS expects to write off another $27 million this year, bringing that $118 million up to $145 million dollars of lost money, lost investments in high-risk deals.

That's a big swing and a lot of big misses for a system that, the state treasurer says, only really needed singles and a few doubles to thrive.

"If you strike out nine times and hit one home run, you're only batting a hundred," Kennedy tells us. "That's not good. That's not going to get you to the pros."

As part of their respective state and legislative responsibilities, both Kennedy and Pearson are members of MERS' board of trustees, but they have little to no involvement in day-to-day operations.

Pearson says he thinks the system is doing a better job with investments now. MERS dumped its old investment adviser and hired a new one, a move that both Pearson and Kennedy advocated.

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