Whistleblower Allegations of Political Influence in TRS Pension Investments Merit Further, Credible Investigation

Retired school employees drawing pensions from the Texas Teacher Retirement System gathered in Dallas today to call for a thorough and credible investigation into recently disclosed charges by a TRS whistleblower, who said pension-fund managers and trustees have made investment decisions based on political influence rather than the best interests of pensioners.

An internal TRS investigation that concluded there was “no definitive evidence” of wrongdoing has left TRS retirees with many unanswered questions about the extent to which TRS investment decision-making was politicized for the benefit of favored interests–including some who have been key players in the financing of Gov. Rick Perry’s political campaigns. The district attorney’s staff in the state capital says criminal prosecution is not warranted based on information currently available. But the issues raised by the whistleblower’s allegations go to important questions of ethics and good policy, not just whether or not the practices that have been revealed met technical definitions of criminal conduct.

Rena Honea, president of Texas AFT’s 10,000-member affiliate in Dallas ISD, the Alliance-AFT, noted that school employees depend for their retirement security on the sound investment of their pension fund. Their acute vulnerability to mismanagement of the fund means that we need vigilant “watchdogs” to ensure that their money is protected, she said.

The April 2009 whistleblower memo from Michael Green, at the time TRS director of private-markets investments, charged that fiduciary responsibility to TRS members took a back seat to political considerations in investment decision-making. The memo said decisions were made in an atmosphere of “relativistic ethics” that represented “a slippery slope which will bring permanent long-term harm to the fund’s beneficiaries.” Included in the mix of questionable decisions was a recommendation to invest with EnCap Energy Infrastructure Fund. Gary Petersen, a key player in the EnCap venture, reportedly has donated $300,000 to Gov. Perry’s election campaigns. Also among the notable allegations was one involving TRS trustee Dory Wiley’s personal or outside business use of confidential data, provided by TRS staff at the direction of the chief TRS investment officer, Britt Harris.

Retirees have reacted with indignation to the disclosures and allegations in the whistleblower memo. “Retirees haven’t received a benefit increase in nearly a decade while they struggle to cope with inflation and rising health-care costs, yet Perry’s appointees to the pension fund board feel free to play politics with hundreds of millions of dollars and reward allies with investments,” said Judy Bryant, a retired Dallas teacher and member of Alliance-AFT.

Retirees are unconvinced that the internal investigation conducted by TRS adequately addresses their legitimate concerns. For one thing, the investigator chosen by TRS officials to look into the whistleblower’s complaints, Roel Campos, was himself the subject of controversy over conflict-of-interest concerns back in 2008, when he was selected by the TRS board of trustees as the pension agency’s outside legal adviser on ethics issues. The TRS contract with his firm was not approved by the attorney general, after key legislators criticized the selection because his firm had no track record of representing public pension funds but did have many business clients with potential investments to offer TRS.

Retirees also noted today that the internal investigation by Campos found that at least one TRS board member “may have violated” the TRS ethics policy against use by trustees of their relationship with TRS for personal gain, though Campos added that “there is also evidence to support that the commercial use of TRS information” in this case was “inadvertent.”

“We aren’t convinced the TRS internal investigation is credible,” said Linda Bridges, president of Texas AFT, who was on hand at today’s Dallas event in solidarity with TRS retirees. Bridges called for a legislative inquiry into the whistleblower allegations and also said: “This whistleblower’s allegations are a wake-up call for legislators to ensure that the TRS board of trustees is focused on proper motivations for investment decisions, and one way to do that is by increasing the representation from actual TRS members serving on the board.”

Bridges noted that Gov. Perry last year vetoed a bipartisan bill that would have given TRS retirees the power to nominate a second retiree member to serve on the nine-member board, all of whose members ultimately must be appointed by the governor. The bill would have made room for this extra retiree nominee by subtracting one of the nominations allotted to the State Board of Education. Perry said in his veto message that the proposed change would cause a loss of financial expertise on the TRS board. “The expertise Perry cites seems to be the ability to respond to political pressure and requests for favors instead of looking out for retired school employees,” Bridges said.

Also addressing the crowd at today’s retiree gathering were retired Alliance-AFT member Dorothy Isaac and Gene Lantz, speaking on behalf of the Alliance for Retired Americans.

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