For some Wall Street money managers, picking up the tab at dinner or giving away hot concert tickets can be a small price to pay to curry favor among public officials in charge of multi-billion-dollar retirement accounts.
But when it comes to tracking these kinds of gifts, public pension plans in the Chicago region have displayed an alarming lack of transparency and record keeping, the Better Government Association found.
All 10 public-sector pension agencies surveyed by the BGA limit gifts from vendors to a dollar value, ranging from $50 to $100 cumulatively from a single source per year, and most of the pension funds cap expenses on food at $75 per person per day. But only four of the 10 funds – which collectively control more than $30 billion in taxpayer money on behalf of more than 200,000 current and future public-sector retirees – appear to have systems in place to monitor whether or not rules are being followed, according to documents obtained through the Illinois Freedom of Information Act, and interviews.
“I think any time you are talking about a public official or somebody who exercises discretion with respect to taxpayer money there is a concern that if they receive gifts or perks that that will influence their decision-making,” said Jill Fisch, a law professor at the University of Pennsylvania Law School.
Organizations have only recently begun to recognize the conflicts associated with such benefits, and while many are setting limits on perks, few are thinking about how to enforce their policies, Fisch said.
“It’s the second step,” she said. “If you put a limit into place, then what sort of record-keeping or reporting do you do. . . . There’s not much of a point of setting up some sort of a limit unless someone’s monitoring that.”
Take, for instance, the Retirement Plan for Chicago Transit Authority Employees.
The CTA pension plan, as the BGA previously reported with Crain’s Chicago Business, has had a number of governance issues surface in recent months. Its investment adviser, Gray & Co., is under investigation by the U.S. Securities and Exchange Commission. One its trustees, Robert Kelly, solicited donations – for a college scholarship fund run by his union – from the fund’s investment managers. And the fund’s record keeping is severely lacking with no budgets or annual payroll on file.
So, when the BGA asked through FOIA for documents that show what gifts or perks have been bestowed on board members and employees, the CTA fund was the only agency of the 10 surveyed to refuse, calling the request “unduly burdensome.”
Instead, it turned over a sampling of emails that pertain solely to its executive director, John Kallianis. Some of the emails indicated that pension fund vendors treated Kallianis to meals at upscale restaurants and, on at least one occasion, a Chicago White Sox game, which was valued at $20.
Kallianis would not answer questions about how much each item cost and who paid, and instead said via email “trustees and staff of the Plans are mindful of the requirements of the Illinois Pension Code and our Code of Conduct as they relate to the limitations on meals, etc. Each of the items that you’re asking about fell within those limitations.”
State law bans retirement fund trustees and employees from soliciting or accepting any gifts from “prohibited sources,” including those currently doing business or seeking to do business with the fund. Among the law’s exceptions: Any items from a single source with a cumulative value of no more than $100 per year, or food and refreshments not exceeding $75 per person in a day. (Each pension plan is entitled to design its own rules so long as they are more restrictive than what the state requires.)
But without documentation, the CTA fund – and others – have no way of really knowing whether or not the gifts and meals are within the limits, said Seth Lipner, a professor of law at Baruch College’s Zicklin School of Business.
“The failure to keep records when there are especially strict standards like that in place is very troubling,” he said. “Maybe it is just a couple of ice cubes, and if it is, OK. But how do we in the public know?”
The CTA pension plan is not alone. Nine out of the 10 funds in Chicago do not appear to keep track of and tally all gifts and perks received, the BGA found. The other funds include:
- County Employees’ and Officers’ Annuity and Benefit Fund of Cook County
- Chicago Housing Authority Employees’ Retirement Plan & Trust
- Firemen’s Annuity and Benefit Fund of Chicago
- Laborers’ & Retirement Board Employees’ Annuity & Benefit Fund of Chicago
- Metropolitan Water Reclamation District of Greater Chicago
- Municipal Employees’ Annuity and Benefit Fund of Chicago
- Park Employees’ Annuity & Benefit Fund of Chicago
- Policemen’s Annuity and Benefit Fund of Chicago
- Public School Teachers’ Pension and Retirement Fund of Chicago
Regina Tuczak, executive director of the policemen’s pension fund, said via email “the Fund’s trustees and staff, where applicable, comply with the Illinois Pension Code,” but she also noted that the fund “does not monitor the outside activities of its staff or trustees.”
The CHA said none of its pension fund trustees or employees have received or taken any gifts from vendors. This information, however, is based on a poll that was only conducted in response to the BGA’s inquiry. The fund also does not currently have an ethics policy and said it is planning to adopt one next month.
The pension fund for Cook County employees is the only plan that keeps a running log of gifts, which details the donor, recipient, description of gift, value of gift, date received, and a description of how the gift was handled or disposed of. Records indicate that people at the fund received four holiday-related gifts, each valued at $50, in 2013 and none so far in 2014. Most of the gifts came from vendors of the pension system, including one money manager.
Though they do not tally all gifts, board members and employees of both the laborers’ and firemen’s funds have to report gifts that surpass the $100 limit within 10 business days of receipt, according to their policies.
Organizations, according to Lipner, “ought to be monitoring what these individuals do and have systems in place, whether it’s spot-checking or having people fill out forms and making declarations that they are in compliance.”
The funds for municipal employees and firefighters make trustees sign written statements each year to declare they are in compliance with their ethics policies.
Stacey Ruffolo, a spokeswoman for the municipal employees’ fund, said trustees have little contact with financial managers and that they’ve never had any issues regarding gifts.
“We haven’t had an opportunity where anyone’s given us any type of gift that they’ve had to notify us about,” she said. “We would keep a log if there was anything to put in the log.”
The Chicago teachers’ pension plan also does not maintain a gift log, but it does have additional requirements on top of the state statute. There, the $75 limit on food is only allowed if the meal is provided to all trustees or as part of a group event. Furthermore, the fund prohibits trustees and employees from accepting food or gifts of any value from prospective service providers and from any investment manager or vendor that has been placed on the fund’s “watch list.”
Scott Miller, chief legal officer for the fund, said the agency also has tried to deal with outside pressure by scheduling a meeting once a month with financial managers looking for business.
“That gives them a specific time and place and opportunity to bring [their pitch] to the board, and it helps reduce some of that pressure that the investment team and trustees get,” Miller said.
Some of the funds, though, didn’t want to talk about gifts at all. The funds for laborers and firemen, for example, told the BGA that FOIA only requires them to provide documents – not to answer questions, and so they refused to respond to follow-up inquiries.
Bill Even, a professor of economics at Miami University in Ohio, said people might not be doing anything wrong when it comes to gift-giving but that it’s best for any public pension plan to be as transparent as possible about such matters.
“To the extent that you’re open and transparent about parts of the operation, people making decisions for the wrong reason are eventually going to be revealed,” Even said.
This story was written and reported by the Better Government Association’s Katie Drews, who can be reached at (312) 821-9027 or email@example.com.
PREVIOUS BGA STORIES ABOUT CHICAGO-AREA PENSION FUNDS
Jan. 24, 2014
Jan. 19, 2014
Jan. 13, 2014
Dec. 23, 2013
Dec. 8, 2013
Nov. 25, 2013
Nov. 18, 2013
Nov. 11, 2013