Newspaper: Mo. Teachers pension fund officials living it up

Sunday, October 19, 2008 | 7:32 p.m. CDT; updated 7:37 p.m. CDT, Sunday, October 19, 2008

KANSAS CITY — The top executives of Missouri's teachers pension fund are spending thousands of taxpayer dollars on such things as expensive dinners, bar tabs and stays at luxury hotels, The Kansas City Star reported Sunday.

The Star also reported that three of the top executives for the Public School and Education Employee Retirement Systems of Missouri have company cars with free gas, even for personal use. And records show all three men — Steve Yoakum, the system's executive director; Chief Investment Officer Craig Husting; and Assistant Executive Director Robert Rust – logged more personal mileage on them than business.

The Star also found that some retirement system executives openly accept gifts, meals and travel from investment companies that they are in charge of hiring and firing. In many other states, such actions are prohibited and in some cases have led to criminal charges.

However, the ethics policy for Missouri's system — adopted in 2006 — doesn't prohibit board members or its employees from accepting gifts.

"I am stunned," said Robert Stern, president of the Center for Governmental Studies in Los Angeles and an architect of California's conflict of interest law. "It is totally unethical and should be illegal for them to accept gifts."

Yoakum defended the system's spending practices and relationships with investment managers.

"We really stress fiduciary independence," Yoakum said. "Then we say, as a check on that, don't do anything that you don't want to read about on the front page of The Kansas City Star. ... And generally, that works for us internally on our staff and it works for the board as well. Just don't do anything stupid."

The system includes employees in the state's public school districts — except Kansas City and St. Louis, which have their own retirement systems — and most public community colleges. The system has about $27 billion in assets and more than 200,000 members.

While the retirement system was overfunded with a surplus from 1996 to 2000, it was only 83.5 percent funded last year, The Star reported. That left it with an unfunded liability of $5.3 billion, even before the current market turmoil. The overall investment return for the Missouri teachers pension fund for the first quarter of fiscal year 2009, which ended Sept. 30, was -9 percent.

However, retirement system executives said that because of diversification the fund was weathering the storm on Wall Street better than other public funds.

While the teachers retirement system's ethics and expenditure policy requires that employees keep their expenses "reasonable," it sets no spending limits.

"We just tell people to try to be reasonable and to document what they do. I haven't seen any that I consider outrageous," Yoakum said.

Among The Star's findings from credit card receipts and expense reports:

• Every December between 2001 and 2006, the retirement system held a dinner for former board members and management staff at Meadow Lake Acres Country Club in New Bloomfield. Food costs exceeded $5,500 and the bar tab was $1,600. Yoakum said there should not have been an open bar but noted that the average cost of alcohol per person was only $4.38 in 2005 and $5.86 in 2006.

• Employees sometimes were reimbursed for meals that included alcoholic drinks, although Yoakum said that's prohibited. Yoakum also said that the retirement system recently implemented new financial controls that make it easier to catch improper charges.

• The retirement system's total travel costs jumped 49 percent from fiscal 2005 to fiscal 2008 — from $180,000 to $269,000. Top executives sometimes stayed at posh hotels that cost more than $300 a night, although the agency's policy says employees and board members should stay at "moderately priced hotels." For example, on Dec. 5, 2007, Husting stayed in New York City, costing the retirement system $604.39 for one night.

• Last year, Rust reported driving only 2,489 business miles, but he put 17,207 personal miles on his company vehicle. Husting put 7,926 business miles on his vehicle, but he reported driving 16,024 personal miles. Yoakum put nearly 100,000 personal miles on his company cars between 2001 and 2007. Yoakum noted that the pension fund's seven-member board approved the company cars and gasoline as part of the executives' compensation package and that such perks are considered taxable income.

• Some of the retirement system's employees used the pension fund's credit cards to make personal purchases. However, officials say those charges were reimbursed and most credit cards were eliminated in 2003.

The Star also found that system's ethics policy doesn't require executives and board members to file personal financial disclosure statements with the Missouri Ethics Commission, something required by other public retirement systems. If the executives and board members did, they would have to report any gifts worth more than $200, lodging or travel expense paid by a third party, and substantial ownership interests or involvement in a business that could create a conflict of interest with the retirement fund's investments.

The Star also found that the state auditor is required to review only the system's own independent audits. Those reviews are to be done at least every three years, but the last audit was in 2004.

Some teachers and ethics experts said they were surprised at some of the spending.

"Those people are taking advantage of us," said Oren Bates of Peculiar, who retired from teaching in the Hickman Mills School District in 1992. "I see and hear and read of that in the big corporations, but in this case, it's my money and the taxpayers' money that they're spending."

John Hood, president of the John Locke Foundation, a public policy think tank based in North Carolina, said he had never heard of a similar car policy.

"You either get mileage or you get a car. But you don't typically get a car plus whatever fuel you want," Hood said.

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